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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
þ | Fee computed on table below per Exchange ActRules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange ActRule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
o | Fee paid previously with preliminary materials. |
o | Check box if any part of the fee is offset as provided by Exchange ActRule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
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• | repay the net indebtedness of CHS, which was approximately $132 million at December 31, 2009, and enter into a new credit facility; | |
• | pay cash consideration of $110 million, subject to adjustment as described below; | |
• | issue up to approximately 12.9 million shares of BioScrip common stock, subject to adjustment as described below, of which 2,696,516 shares initially will be held in escrow to fund indemnification payments, if any; and | |
• | issue warrants to acquire 3,400,945 shares of BioScrip common stock, exercisable at $10 per share and having a five-year term. |
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Chairman and Chief Executive Officer
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Proposal No. 1: | To approve the issuance of up to approximately 12.9 million shares of BioScrip common stock, par value $0.0001 per share (subject to increase as described in the accompanying proxy statement if net indebtedness of Critical Homecare Solutions Holdings, Inc. (“CHS”) is less than $132 million at closing), as well as 3,400,945 shares of common stock to be issued upon exercise of warrants to be issued to the stockholders and certain optionholders of CHS, pursuant to the Agreement and Plan of Merger dated as of January 24, 2010, by and among BioScrip, Camelot Acquisition Corp., which is a wholly owned subsidiary of BioScrip, CHS, Kohlberg Investors V, L.P., as stockholders’ representative, and the stockholders of CHS. | |
Proposal No. 2: | To approve a proposal to adjourn the special meeting of BioScrip stockholders for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting of BioScrip stockholders to approve Proposal No. 1. |
Executive Vice President, Secretary and General
Counsel
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• | On January 24, 2010, BioScrip entered into an Agreement and Plan of Merger with Camelot Acquisition Corp. (“Camelot”), which is a wholly owned subsidiary of BioScrip, CHS, Kohlberg Investors V, L.P., as the stockholders’ representative (the “Stockholders’ Representative”), and the stockholders of CHS (the “Stockholders”). CHS is a privately held company that is a leading provider of home infusion and home nursing services and products to patients suffering from chronic and acute medical conditions. Pursuant to the Agreement and Plan of Merger, at the effective time of the merger, CHS will merge with and into Camelot, with Camelot as the surviving entity. | |
• | If the merger is completed, BioScrip will: |
• | repay the net indebtedness of CHS, which was approximately $132 million at December 31, 2009, and enter into a new credit facility; | |
• | pay cash consideration of $110 million, subject to adjustment as described below; | |
• | issue up to approximately 12.9 million shares of BioScrip common stock, subject to adjustment as described below, of which 2,696,516 shares initially will be held in escrow to fund indemnification payments, if any; and | |
• | issue warrants to acquire 3,400,945 shares of BioScrip common stock, exercisable at $10 per share and having a five-year term. |
• | If the net indebtedness of CHS at closing of the merger is $132 million and CHS’s expenses incurred in connection with the merger are $10 million, then the number of shares of BioScrip common stock to be issued in connection with the merger (in addition to shares issuable upon exercise of the warrants being issued) would be approximately 12,655,600 shares, or approximately % of the then outstanding common stock of BioScrip, assuming that no outstanding options to purchase shares of CHS’s common stock, par value $0.001 per share, are exercised before the closing of the merger. If the net indebtedness of CHS at the closing of the merger is less than $132 million, then one-half of the difference would be paid in cash to the Stockholders and the other half would be paid in stock based on a value per share of $8.3441, the10-day volume weighted trading average share price of BioScrip’s common stock over the10-day period ended January 22, 2010. If the net indebtedness of CHS exceeds $132 million, then the cash consideration of $110 million would be reduced by the amount of the excess. | |
• | In order to fund the cash consideration, repay existing indebtedness of CHS and refinance indebtedness of BioScrip, BioScrip has received a financing commitment from Jefferies Finance LLC (“Jefferies Finance”), pursuant to which Jefferies Finance has committed to provide BioScrip with $375 million of debt financing. | |
• | As consideration for the merger with CHS, each share of CHS common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive (i) a number of shares of BioScrip common stock, par value $0.0001 per share, (ii) cash and (iii) following the closing of the merger, its pro rata share of any distributions of BioScrip common stock made from the escrow fund, in each case calculated in accordance with the terms of the Agreement and Plan of Merger. In addition, at the closing of the merger, BioScrip will issue to the Stockholders and certain optionholders of CHS a number of warrants to purchase shares of BioScrip common stock. See “The Agreement and Plan of Merger” on page 53 for a more detailed discussion of the merger consideration. |
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• | In connection with the merger, BioScrip has entered into a Stockholders’ Agreement with the Stockholders’ Representative, the Stockholders and certain optionholders of CHS. The Stockholders’ Agreement grants rights to such parties, including with respect to the designation of nominees for election to the BioScrip board of directors upon the closing of the merger. The Stockholders’ Agreement also contains transfer restrictions and standstill restrictions relating to shares of BioScrip’s common stock that will be issued to such parties in connection with the merger. In addition, the Stockholders’ Agreement gives such parties rights with respect to the registration under the Securities Act of 1933, as amended (the “Securities Act”) of the shares of BioScrip common stock to be issued to such parties, including the shares to be issued upon exercise of the warrants pursuant to the Agreement and Plan of Merger. See the section entitled “The Stockholders’ Agreement” on page 68 for a more detailed discussion. | |
• | In connection with the merger, BioScrip has agreed to enter into a Warrant Agreement with the Stockholders and certain optionholders of CHS pursuant to which BioScrip will issue to such parties warrants to purchase an aggregate of 3,400,945 shares of BioScrip’s common stock, subject to adjustment in certain circumstances in accordance with the terms of the Warrant Agreement. See the section entitled “The Warrant Agreement” on page 72 for a more detailed discussion. | |
• | Also in connection with the merger, certain of BioScrip’s directors and executive officers have entered into a Common Stock Voting Agreement with CHS and the Stockholders’ Representative, pursuant to which such directors and executive officers have agreed, among other things, to vote their shares of BioScrip’s common stock in favor of the proposal to issue additional shares of BioScrip’s common stock in connection with the merger. As of January 24, 2010, these directors and executive officers collectively held shares representing approximately 3.4% of BioScrip’s outstanding common stock. See the section entitled “The Common Stock Voting Agreement” on page 74 for a more detailed discussion. | |
• | In addition, BioScrip has agreed to enter into an Escrow Agreement with U.S. Bank National Association, as escrow agent, and the Stockholders’ Representative. The Escrow Agreement will specify the respective rights and obligations of the parties with respect to the escrow property, which will consist of 2,696,516 shares of BioScrip’s common stock having an aggregate value of $22.5 million (based on a value per share of $8.3441), and all dividends and interest income earned on the escrow property. The escrow property may be disbursed (i) in the case that a purchase price adjustment is required to be paid to BioScrip, or (ii) pursuant to indemnification obligations of the Stockholders, in each case in accordance with the terms of the Agreement and Plan of Merger. See the section entitled “The Escrow Agreement” on page 76 for a more detailed discussion. |
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Q1: | What is the transaction? | |
A1: | BioScrip has entered into an Agreement and Plan of Merger with Camelot, CHS, the Stockholders’ Representative and the Stockholders. Pursuant to the Agreement and Plan of Merger, at the effective time of the merger, CHS will merge with and into Camelot, with Camelot as the surviving entity. If the merger is completed, CHS’s subsidiaries would be subsidiaries of Camelot. |
Q2: | What am I being asked to vote on? | |
A2: | You are being asked to approve the issuance of up to approximately 12.9 million shares of BioScrip common stock (subject to increase as described in this proxy statement if net indebtedness of CHS is less than $132 million at closing), as well as up to an additional 3,400,945 shares of BioScrip common stock to be issued upon exercise of the warrants, in connection with the merger with CHS. The approval of the issuance of BioScrip common stock is required to complete the merger with CHS. | |
In addition, you may be asked to vote to approve an adjournment of the special meeting for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the issuance of BioScrip common stock. The approval of the adjournment of the special meeting of stockholders is not a condition to completing the merger. | ||
Q3: | How does the BioScrip board of directors recommend that I vote? | |
A3: | The BioScrip board of directors recommends that you vote “FOR” the approval of the issuance of BioScrip common stock in connection with the merger and “FOR” the approval of an adjournment of the special meeting, if necessary, to enable BioScrip to solicit additional proxies in favor of the proposal to issue BioScrip common stock. Your vote is important. | |
Q4: | How will BioScrip’s directors and executive officers vote their shares of BioScrip common stock in connection with the proposals? | |
A4: | Certain BioScrip directors and executive officers, including our chairman and chief executive officer, have entered into a Common Stock Voting Agreement pursuant to which they have agreed to vote their shares of BioScrip common stock in favor of each of the proposals. As of January 24, 2010, these directors and executive officers collectively held shares representing approximately 3.4% of BioScrip’s outstanding common stock. | |
Q5: | Why is stockholder approval necessary for the issuance of BioScrip common stock in connection with the merger? | |
A5: | BioScrip’s common stock is listed on the Nasdaq Global Market (“NASDAQ”). NASDAQ rules require stockholder approval before the issuance of common stock if the common stock to be issued will have voting power equal to or greater than 20% of the voting power outstanding before the issuance, or if the number of shares of common stock to be issued will be equal to or greater than 20% of the number of shares of common stock outstanding before the issuance. | |
The shares of BioScrip common stock that will be issued in connection with the merger, including the shares that will be issued upon exercise of the warrants, exceed the thresholds under NASDAQ rules and, therefore, the issuance requires the approval of our stockholders. | ||
Q6: | Why did BioScrip enter into the Agreement and Plan of Merger? | |
A6: | Our board of directors believes that the merger with CHS will provide substantial benefits to BioScrip’s business and operations by, among other things, transforming BioScrip into one of the largest home infusion providers in the U.S. For additional information regarding BioScrip’s reasons for entering into the Agreement and Plan of Merger, see the section entitled “The Transaction — BioScrip’s Reasons for the Transaction” beginning on page 39. |
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Q7: | When is the merger expected to be completed? | |
A7: | BioScrip and CHS are working toward completing the merger as soon as practicable. BioScrip currently expects that the merger will close on or about March 31, 2010. In addition to stockholder approval of the issuance of BioScrip common stock, there are a number of additional conditions, including, but not limited to, expiration or termination of the waiting period under theHart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) that must be satisfied before we can complete the transaction. We have requested early termination of the waiting period provided in the HSR Act. See the section entitled “The Agreement and Plan of Merger — Conditions to Closing the Transaction” beginning on page 61 for a more detailed discussion. | |
Q8: | Do I need to send in my stock certificates if the transaction is completed? | |
A8: | No. You will not be required to exchange your certificates representing shares of BioScrip common stock in connection with this transaction. You will not receive any cash or securities in connection with the merger. Instead, you will continue to hold your existing shares of BioScrip common stock. | |
Q9: | Who can vote at the special meeting? | |
A9: | BioScrip has fixed the close of business on February 8, 2010 as the record date for the special meeting or any adjournment thereof, and only the holders of BioScrip’s common stock on the record date can vote at the special meeting. | |
Q10: | What do I need to do now? | |
A10: | After carefully reading and considering the information contained in this proxy statement, please submit your proxy by telephone or via the Internet in accordance with the instructions set forth in the enclosed proxy card, or complete, sign, date and mail your proxy card in the enclosed prepaid envelope as soon as possible so that your shares may be voted at the special meeting. See the section entitled “The Special Meeting — How to Vote Your Shares” on page 31 and the section entitled “The Special Meeting — Proxies; Counting Your Vote” on page 32 for a more detailed discussion. | |
Q11: | What happens if I do not vote? | |
A11: | The proposal to issue shares of BioScrip’s common stock must be approved by the affirmative vote of the holders of a majority of the shares of BioScrip’s common stock present in person or represented by proxy at the special meeting at which a quorum is present. The proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of the common stock issuance proposal must be approved by the affirmative vote of the holders of a majority of BioScrip’s common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present. The failure to vote on the proposals could have the same effect as a vote cast against approval if it causes less than a majority of the shares of BioScrip common stock present in person or by proxy to be cast for the proposal. In addition, the failure to vote on the proposals, by failing to either submit a proxy or attend the special meeting, may make it more difficult to establish a quorum at the special meeting. | |
Q12: | If my shares are held in “street name” by my broker, will my broker vote my shares for me? | |
A12: | If your shares are held in the name of a bank or broker or other nominee, you will receive separate instructions from your bank, broker or other nominee describing how to vote your shares. The availability of telephonic or Internet voting will depend on the bank’s or broker’s voting process. Please check with your bank or broker and follow the voting procedures your bank or broker provides. | |
You should instruct your bank, broker or other nominee how to vote your shares. The rules applicable to broker-dealers do not grant your broker discretionary authority to vote your shares for the proposal to issue shares of BioScrip common stock or for the proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of the BioScrip common stock issuance proposal without receiving your instructions. As a result, if your broker does not receive voting instructions from you regarding the proposals, your shares will not be voted. |
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Q13: | May I change my vote after I have submitted a proxy by telephone or via the Internet or mailed my signed proxy card? | |
A13: | Yes. You may change your vote at any time before your proxy is voted at the special meeting. You can do this in several ways. You can send a written notice stating that you want to revoke your proxy, or you can complete and submit a new proxy card. If you choose either of these methods, you must submit your notice of revocation or your new proxy card to BioScrip’s Secretary at BioScrip, Attention: Corporate Secretary, 100 Clearbrook Road, Elmsford, New York 10523. | |
You can also change your vote by submitting a proxy at a later date by telephone or via the Internet, in which case your later-submitted proxy will be recorded and your earlier proxy revoked. | ||
You can also attend the special meeting and vote in person. Simply attending the special meeting, however, will not revoke your proxy. To revoke your earlier proxy, you must vote at the special meeting. | ||
If you have instructed a broker to vote your shares, the preceding instructions do not apply, and you must follow the voting procedures received from your broker to change your vote. | ||
Q14: | If I want to attend the special meeting, what do I do? | |
A14: | You should come to BioScrip’s executive offices at 100 Clearbrook Road, Elmsford, New York 10523 on , 2010 at , local time. Stockholders of record as of the record date for the special meeting (February 8, 2010) can vote in person at the special meeting. A valid government issued identification card will be required for entry to the special meeting. If your shares are held in street name, then you are not the stockholder of record and you must ask your bank, broker or other nominee holder how you can vote at the special meeting. | |
Q15: | Who can help answer my questions? | |
A15: | If you have any questions or need assistance in voting your shares, please call the firm assisting us in the solicitation of proxies: |
You may also contact: |
100 Clearbrook Road
Elmsford, New York 10523
Attention: Corporate Secretary
Telephone:(914) 460-1600
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• | The Issuance of Common Stock Proposal (Proposal No. 1). You will be asked to approve the issuance of up to approximately 12.9 million shares of BioScrip common stock (subject to increase as described in this proxy statement if the net indebtedness of CHS is less than $132 million at closing), as well as 3,400,945 shares of common stock to be issued upon exercise of warrants to be issued to the Stockholders and certain optionholders of CHS, pursuant to the Agreement and Plan of Merger. If the issuance of shares of BioScrip’s common stock is approved, then in accordance with the Agreement and Plan of Merger, CHS will merge with and into Camelot, with Camelot as the surviving entity. The |
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approval of the issuance of BioScrip common stock is a condition to the completion of the merger with CHS. |
• | The Adjournment Proposal (Proposal No. 2). You may be asked to approve an adjournment of the special meeting for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve Proposal No. 1. The approval of the adjournment of the special meeting is not a condition to completion of the merger with CHS. |
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• | BioScrip’s stockholders adopting and approving the proposal to issue shares of BioScrip common stock at the special meeting of stockholders called for this purpose; |
• | the representations and warranties of the Stockholders and CHS being true and correct as of the date of closing, or, to the extent they expressly relate to a specific date, then as of that specific date, with only these exceptions which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect; |
• | any waiting period under the HSR Act applicable to the merger having terminated or expired; | |
• | on the date of closing, there existing no injunctions or other order issued by any government authority or court of competent jurisdiction which prohibits the consummation of the merger or materially deprives BioScrip of the benefits of the merger; | |
• | BioScrip having received payoff letters with respect to the payment of the aggregate outstanding principal and accrued interest and other amounts payable in respect of certain CHS credit agreements and the release of any liens related thereto; | |
• | all required licenses, permits, consents, authorizations, approvals, qualifications and orders of governmental authorities and certain other persons having been obtained; | |
• | the Escrow Agreement having been executed and delivered by the Stockholders’ Representative; | |
• | the Stockholders’ Agreement having been executed and delivered by each of the Stockholders and any holders of CHS stock options, if any, receiving shares of BioScrip’s common stock in connection with the merger with CHS; | |
• | BioScrip having received the proceeds of the debt financing on the specified terms; | |
• | BioScrip having received the opinion of King & Spalding LLP to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”); | |
• | BioScrip having received the audited consolidated balance sheet of CHS and its subsidiaries as of December 31, 2009 and the related audited consolidated statements of income, shareholders’ equity and cash flows of CHS and its subsidiaries for the year then ended, together with the notes and schedules thereto and an unqualified audit opinion of its independent registered public accounting firm with respect thereto; |
• | BioScrip having received the accountants’ consent and “comfort” letters that have been reasonably requested under the Agreement and Plan of Merger prior to the closing date in connection with the debt financing; |
• | in the event that the Stockholders would receive BioScrip common stock valued at the Applicable Stock Value (as defined below) as a result of cash amounts that otherwise would have been paid to the Stockholders causing the Threshold Percentage (as defined below) to be lower than 40.5% at the time of such payments, the Applicable Stock Value (as determined at 4:00 p.m. as of the last trading day immediately preceding the scheduled date of closing, and as adjusted for splits, conversions and reverse splits) not being less than $5.2151. The term “Applicable Stock Value” means the average of the high and low selling prices of a share of BioScrip’s common stock quoted on NASDAQ, as reported byThe Wall Street Journal, for the last trading day immediately before (1) January 24, 2010 if, as of the closing date, Temp. Reg.section 1.368-1(e)(2) has not expired or has been replaced by a regulation permitting or requiring BioScrip’s common stock to be valued, for purposes of applying the continuity of interest requirement under Section 368 of the Code, on the last trading day immediately before January 24, 2010, or (2) the date of closing if the condition described in clause (1) above is not satisfied as of such date. The term “Threshold Percentage” means the quotient (expressed as a percentage) obtained by dividing (i) the product of the aggregate number of shares of BioScrip’s |
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common stock delivered to the Stockholders under the Agreement and Plan of Merger (excluding the 2,969,516 shares to be held in escrow) multiplied by the Applicable Stock Value (the “Non-Escrow Stock Consideration”), by (ii) the sum of (a) the Non-Escrow Stock Consideration, plus (b) the aggregate amount of cash paid to the Stockholders, plus (c) all amounts payable to the holders of CHS’s Series A Preferred Stock, $0.001 par value per share, at the closing of the merger, plus (d) $15 million (which represents the aggregate fair market value of the warrants to be issued pursuant to the Warrant Agreement); and |
• | CHS, the Stockholders’ Representative and the Stockholders having satisfied other customary closing conditions. |
• | the representations and warranties of BioScrip being true and correct in all material respects as of the date of closing, or, to the extent they expressly related to a specific date, then as of the specific date, with only those exceptions which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect; | |
• | any waiting period under the HSR Act applicable to the merger having terminated or expired; | |
• | on the date of closing, there existing no injunctions or other order issued by any government authority or court of competent jurisdiction which prohibits the consummation of the merger; | |
• | all required licenses, permits, consents, authorizations, approvals, qualifications and orders of governmental authorities and certain persons having been obtained; | |
• | the Escrow Agreement having been executed and delivered by the Stockholders’ Representative and BioScrip; | |
• | the Stockholders’ Agreement having been executed and delivered by each of the Stockholders and any holders of CHS stock options, if any, receiving shares of BioScrip’s common stock in connection with the merger with CHS; | |
• | BioScrip having received the proceeds of the debt financing on the specified terms; | |
• | the BioScrip stockholders having approved the proposal to issue shares of BioScrip common stock; | |
• | CHS having received the opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul, Weiss”) to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code; | |
• | the per share price (as determined at 4:00 pm as of the relevant date) of BioScrip’s common stock on NASDAQ (as adjusted for splits, conversions and reverse splits) not being less than $5.2151 for the 10 trading days immediately preceding the scheduled date of closing; and | |
• | BioScrip having satisfied other customary closing conditions. |
• | by mutual written consent of BioScrip and the Stockholders’ Representative; or | |
• | by either BioScrip or the Stockholders’ Representative if the closing date has not occurred on or before June 30, 2010 (subject to extension by mutual agreement in the event of regulatory or antitrust issues), |
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but only if the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Agreement and Plan of Merger; or |
• | subject to BioScrip’s obligations relating to challenges to the merger as violative of antitrust laws, by BioScrip or the Stockholders’ Representative if a court of competent jurisdiction or other governmental authority has issued an order or injunction or taken any other action (which order, injunction or action the parties will use their commercially reasonable efforts to lift) permanently restraining, enjoining or otherwise prohibiting the transactions contemplated under the Agreement and Plan of Merger and such order or action has become final and nonappealable; or | |
• | by the Stockholders’ Representative, if neither CHS nor any of the Stockholders is then in material breach of any term of the Agreement and Plan of Merger, upon written notice to BioScrip, upon a material breach of any representation, warranty or covenant of BioScrip contained in the Agreement and Plan of Merger such that the conditions to closing set forth in Agreement and Plan of Merger cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by the Stockholders’ Representative to BioScrip; or | |
• | by BioScrip, if BioScrip is not then in material breach of any term of the Agreement and Plan of Merger, upon written notice to Stockholders’ Representative, upon a material breach of any representation, warranty or covenant of CHS or the Stockholders contained in the Agreement and Plan of Merger such that the conditions to closing set forth in Agreement and Plan of Merger cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by BioScrip to the Stockholders’ Representative; or | |
• | by the Stockholders’ Representative or BioScrip if the BioScrip stock issuance proposal has been submitted to the BioScrip stockholders for adoption by written consent or at a duly convened special meeting of stockholders (or adjournment thereof) and the approval of the BioScrip stockholders was not obtained. |
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CHS | ||||||||||||||||
BioScrip | BioScrip | CHS | Equivalent | |||||||||||||
Historical | Pro Forma | Historical | Pro Forma | |||||||||||||
Net Income (loss) per common share — basic:(A) | ||||||||||||||||
Fiscal year ended December 31, 2008 | $ | (1.93 | ) | $ | (1.51 | ) | $ | 0.06 | $ | (0.21 | ) | |||||
Nine months ended September 30, 2009 | $ | 0.35 | $ | 0.30 | $ | 0.11 | $ | 0.04 | ||||||||
Net Income (loss) per common share — diluted:(A) | ||||||||||||||||
Fiscal year ended December 31, 2008 | $ | (1.93 | ) | $ | (1.51 | ) | $ | 0.06 | $ | (0.21 | ) | |||||
Nine months ended September 30, 2009 | $ | 0.34 | $ | 0.29 | $ | 0.10 | $ | 0.04 | ||||||||
Cash dividends per share: | ||||||||||||||||
Fiscal year ended December 31, 2008 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
Nine months ended September 30, 2009 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
Book value per share as of September 30, 2009 | $ | 2.87 | $ | 4.36 | $ | 1.00 | $ | 0.61 |
(A) | CHS Historical amounts are based on CHS net income available to common stockholders. |
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High | Low | |||||||
Fiscal Year 2007 | ||||||||
First Quarter | 3.85 | 2.88 | ||||||
Second Quarter | 4.96 | 3.00 | ||||||
Third Quarter | 6.84 | 4.44 | ||||||
Fourth Quarter | 9.82 | 6.35 | ||||||
Fiscal Year 2008 | ||||||||
First Quarter | 8.47 | 5.65 | ||||||
Second Quarter | 7.06 | 2.55 | ||||||
Third Quarter | 5.07 | 1.94 | ||||||
Fourth Quarter | 5.00 | 1.26 | ||||||
Fiscal Year 2009 | ||||||||
First Quarter | 2.84 | 1.35 | ||||||
Second Quarter | 5.99 | 1.95 | ||||||
Third Quarter | 7.29 | 5.26 | ||||||
Fourth Quarter | 9.05 | 6.25 | ||||||
Fiscal Year 2010 | ||||||||
First Quarter (through , 2010) |
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FINANCIAL DATA OF CRITICAL HOMECARE SOLUTIONS HOLDINGS, INC.
• | The consolidated statement of operations data for the years ended December 31, 2004 and 2005 and the consolidated balance sheet data as of December 31, 2004 and 2005 have been derived from each of CHS’s predecessors’ consolidated financial statements and the related notes thereto. | |
• | The consolidated statement of operations data for the eight months ended August 31, 2006 and the consolidated balance sheet data as of August 31, 2006 have been derived from each of CHS’s predecessors’ audited consolidated financial statements and the related notes thereto, which were audited by Deloitte & Touche LLP, an independent registered public accounting firm, and which are included elsewhere in this proxy statement. |
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Predecessor | Predecessor | |||||||||||||||||||||||||||||||||||||||||||
CHS(1) | (New England Home Therapies)(1) | (Specialty Pharma)(1) | ||||||||||||||||||||||||||||||||||||||||||
Period from | Period from | Period from | ||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended | Fiscal Year Ended | September 1– | January 1– | Fiscal Year Ended | January 1– | Fiscal Year Ended | ||||||||||||||||||||||||||||||||||||||
September 30, | December 31, | December 31, | August 31, | December 31, | August 31, | December 31, | ||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 187,457 | $ | 166,746 | $ | 230,868 | $ | 193,853 | $ | 16,897 | $ | 13,217 | $ | 17,266 | $ | 15,374 | $ | 19,741 | $ | 29,287 | $ | 26,575 | ||||||||||||||||||||||
Gross Profit | $ | 96,326 | $ | 87,320 | $ | 118,910 | $ | 98,507 | $ | 7,746 | $ | 7,508 | $ | 9,803 | $ | 8,294 | $ | 7,322 | $ | 11,934 | $ | 11,163 | ||||||||||||||||||||||
Terminated transaction costs(2) | $ | — | $ | 2,187 | $ | 3,580 | $ | 4,379 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
(Loss) gain related to reorganization(3) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (56 | ) | $ | 9,144 | $ | — | $ | — | $ | — | |||||||||||||||||||||
Net (loss) income | $ | 11,650 | $ | 6,183 | $ | 5,967 | $ | 1,612 | $ | 286 | $ | 647 | $ | 1,006 | $ | 9,564 | $ | (781 | ) | $ | 157 | $ | 233 | |||||||||||||||||||||
Income available to common stockholders | $ | 10,359 | $ | 6,107 | $ | 5,723 | $ | 1,612 | $ | 286 | $ | 647 | $ | 1,006 | $ | 9,564 | $ | (1,132 | ) | $ | (335 | ) | $ | (220 | ) | |||||||||||||||||||
Net income (loss) available to common stockholders per share — basic | $ | 0.11 | $ | 0.07 | $ | 0.06 | $ | 0.02 | $ | 0.01 | $ | 323.68 | $ | 503.02 | $ | 4,781.78 | $ | (16.59 | ) | $ | (4.91 | ) | $ | (3.23 | ) | |||||||||||||||||||
Net income (loss) available to common stockholders per share — diluted | $ | 0.10 | $ | 0.06 | $ | 0.06 | $ | 0.02 | $ | 0.01 | $ | 323.68 | $ | 503.02 | $ | 4,781.78 | $ | (16.59 | ) | $ | (4.91 | ) | $ | (3.23 | ) | |||||||||||||||||||
Weighted average shares outstanding used in computing: | ||||||||||||||||||||||||||||||||||||||||||||
basic income (loss) per share | 90,898 | 90,898 | 90,898 | 86,050 | 25,350 | 2 | 2 | 2 | 68 | 68 | 68 | |||||||||||||||||||||||||||||||||
diluted income (loss) per share | 104,424 | 95,941 | 96,857 | 86,840 | 25,350 | 2 | 2 | 2 | 68 | 68 | 68 | |||||||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||||||||||
Working capital(4) | $ | 30,078 | $ | 31,325 | $ | 32,515 | $ | 27,346 | $ | 5,807 | $ | 2,020 | $ | 1,530 | $ | 1,534 | $ | 1,953 | $ | 2,011 | $ | 2,612 | ||||||||||||||||||||||
Short term debt (including capital leases) | $ | 8,090 | $ | 5,280 | $ | 5,989 | $ | 3,214 | $ | 1,041 | $ | 716 | $ | 881 | $ | 729 | $ | 1,953 | $ | 2,635 | $ | 3,007 | ||||||||||||||||||||||
Long term debt (including capital leases) | $ | 134,208 | $ | 149,181 | $ | 145,831 | $ | 151,580 | $ | 24,981 | $ | 2,429 | $ | 2,237 | $ | 3,025 | $ | 1,318 | $ | 1,547 | $ | 2,155 | ||||||||||||||||||||||
Total assets | $ | 312,251 | $ | 301,473 | $ | 306,880 | $ | 288,270 | $ | 61,512 | $ | 7,230 | $ | 6,474 | $ | 5,504 | $ | 11,731 | $ | 13,922 | $ | 15,133 | ||||||||||||||||||||||
Stockholders’ equity (deficit) | $ | 116,129 | $ | 103,362 | $ | 103,429 | $ | 96,274 | $ | 25,461 | $ | 1,652 | $ | 1,144 | $ | 138 | $ | (1,456 | ) | $ | (324 | ) | $ | 12 | ||||||||||||||||||||
Book value per common share outstanding | $ | 1.3 | $ | 1.1 | $ | 1.1 | $ | 1.1 | $ | 1.0 | $ | 826.0 | $ | 572.0 | $ | 69.0 | $ | (21.3 | ) | $ | (4.7 | ) | $ | 0.2 | ||||||||||||||||||||
Common shares outstanding at end of period | 90,898 | 90,898 | 90,898 | 90,898 | 25,350 | 2 | 2 | 2 | 68 | 68 | 68 |
(1) | No dividends were declared by CHS’s predecessors or CHS for any of the periods presented. | |
(2) | 2008 primarily reflects transaction costs relative to the termination of CHS’s proposed acquisition by MBF Healthcare Acquisition Corp, which was effective October 31, 2008. 2007 reflects stock issuance costs, relative to the termination of CHS’s initial public offering onForm S-1 with the SEC in January 2008. | |
(3) | Relates to New England Home Therapies’ Plan of Reorganization, pursuant to the provisions of Chapter 11 of the Bankruptcy Code, filed in February 2004 for the restructuring of its outstanding creditor claims. | |
(4) | Working capital includes current portion of deferred tax assets, capital lease obligations and long term debt. |
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FINANCIAL DATA OF BIOSCRIP
Nine Months Ended | ||||||||||||||||||||||||||||
September 30, | Fiscal Year Ended December 31, | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Revenue(1) | $ | 987,974 | $ | 1,035,338 | $ | 1,401,911 | $ | 1,197,732 | $ | 1,151,940 | $ | 1,072,895 | $ | 630,516 | ||||||||||||||
Gross profit | $ | 115,874 | $ | 104,179 | $ | 142,170 | $ | 137,015 | $ | 118,056 | $ | 116,376 | $ | 68,156 | ||||||||||||||
Merger related expenses(2) | $ | — | $ | — | $ | — | $ | — | $ | 58 | $ | 4,575 | $ | — | ||||||||||||||
Goodwill and intangible impairment(3) | $ | — | $ | — | $ | 93,882 | $ | — | $ | — | $ | 25,165 | $ | — | ||||||||||||||
Net (loss) income (4, 5, 6) | $ | 13,409 | $ | 2,552 | $ | (74,032 | ) | $ | 3,317 | $ | (38,289 | ) | $ | (23,847 | ) | $ | 7,033 | |||||||||||
Net (loss) income per common share—basic | $ | 0.35 | $ | 0.07 | $ | (1.93 | ) | $ | 0.09 | $ | (1.03 | ) | $ | (0.70 | ) | $ | 0.32 | |||||||||||
Net (loss) income per common share—diluted (7) | $ | 0.34 | $ | 0.07 | $ | (1.93 | ) | $ | 0.09 | $ | (1.03 | ) | $ | (0.70 | ) | $ | 0.31 | |||||||||||
Weighted average common shares outstanding used in computing: | ||||||||||||||||||||||||||||
basic (loss) income per share | 38,807 | 38,359 | 38,417 | 37,647 | 37,304 | 34,129 | 22,245 | |||||||||||||||||||||
diluted (loss) income per share (7) | 39,345 | 39,187 | 38,417 | 38,491 | 37,304 | 34,129 | 22,702 | |||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Working capital | $ | 76,153 | $ | 55,296 | $ | 58,844 | $ | 49,213 | $ | 37,023 | $ | 67,488 | $ | 13,968 | ||||||||||||||
Line of credit | $ | 39,584 | $ | 55,024 | $ | 50,411 | $ | 33,778 | $ | 52,895 | $ | 7,427 | $ | 7,303 | ||||||||||||||
Total assets(3, 6) | $ | 240,180 | $ | 336,963 | $ | 246,957 | $ | 296,822 | $ | 305,456 | $ | 298,629 | $ | 185,788 | ||||||||||||||
Stockholders’ equity(3, 6) | $ | 112,701 | $ | 171,628 | $ | 95,537 | $ | 166,203 | $ | 161,833 | $ | 195,765 | $ | 115,683 | ||||||||||||||
Book value per common share outstanding(3, 6) | $ | 2.87 | $ | 4.47 | $ | 2.47 | $ | 4.35 | $ | 4.32 | $ | 5.28 | $ | 5.19 | ||||||||||||||
Common shares outstanding at end of period | 39,272 | 38,403 | 38,691 | 38,251 | 37,488 | 37,094 | 22,307 |
(1) | Revenues in 2008 include Competitive Acquisition Program (“CAP”) revenues of $54.0 million for the nine months ended September 30, 2008 and $71.2 million for the twelve months ended December 31, 2008. The CAP program ended December 31, 2008. Revenues in 2008 also include United Healthcare (“UHC”) HIV/AIDS and solid organ transplant services of $83.7 million for the nine months ended September 30, 2008 and $116.6 million for the twelve months ended December 31, 2008. 2009 revenues |
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include $23.3 million related to the UHC HIV/AIDS and solid organ transplant services which were terminated in 2009. Certain pharmacy benefit management customer contracts ended in 2007 and prior years. Revenue related to these contracts was $15 million, $76.8 million, $154.8 million and $136.1 million in the years 2007, 2006, 2005 and 2004, respectively. | ||
(2) | Reflects merger, integration and re-branding expenses related to the acquisition of Chronimed, Inc. on March 12, 2005. | |
(3) | 2008 includes a $90.0 million charge related to impairment of goodwill, and a $3.9 million charge related to write-off of remaining intangible assets. 2005 includes a $6.6 million charge related to write-off of non-compete agreements, trade names and customer lists due to our rebranding strategy in the Specialty Services segment and an $18.6 million charge, related to goodwill impairment in the Traditional Pharmacy Services segment which includes pharmacy benefit management services. These charges reduced book value by $2.32 per common share as of December 31, 2008 and $0.68 per common share as of December 31, 2005. | |
(4) | Net income in 2004 includes a $0.5 million charge, net of tax, related to a settlement with Value Options of Texas, Inc. | |
(5) | Net loss in 2005 includes a $4.3 million charge, net of tax, to reflect an increase in the allowance for doubtful accounts receivable created by lower than expected collections during the merger integration period. | |
(6) | Net loss in 2006 includes a $25.7 million income tax charge for the establishment of a valuation allowance recorded against deferred tax assets. This adjustment reduced book value by $0.68 per common share outstanding as of December 31, 2006. | |
(7) | The 2008, 2006 and 2005 net loss per diluted share excludes the effect of common stock equivalents, as their inclusion would be anti-dilutive. |
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FINANCIAL DATA OF BIOSCRIP
Pro Forma | ||||||||
Pro Forma | Year Ended | |||||||
Nine Months Ended | December 31, | |||||||
September 30, 2009 | 2008 | |||||||
(In thousands, except per share data) | ||||||||
Statement of Operations Data: | ||||||||
Revenue | $ | 1,175,431 | $ | 1,632,779 | ||||
Gross profit | $ | 212,200 | $ | 261,080 | ||||
Goodwill and intangible impairment | $ | — | $ | 93,882 | ||||
Net income (loss) | $ | 15,274 | $ | (77,784 | ) | |||
Income (loss) per common share — basic(A) | $ | 0.30 | $ | (1.51 | ) | |||
Income (loss) per common share — diluted(A) | $ | 0.29 | $ | (1.51 | ) | |||
Balance Sheet Data: | ||||||||
Working capital | $ | 174,676 | ||||||
Total assets | $ | 669,779 | ||||||
Stockholders’ equity | $ | 227,701 |
(A) | CHS Historical amounts are based on CHS net income available to common stockholders. |
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• | the inability of BioScrip to achieve the cost savings and operating synergies anticipated in the merger, including synergies relating to increased purchasing efficiencies and a reduction in costs associated with the merger, which would prevent BioScrip from achieving the positive earnings gains expected as a result of the merger; | |
• | diversion of management attention from ongoing business concerns to integration matters; | |
• | difficulties in consolidating and rationalizing information technology platforms and administrative infrastructures; | |
• | complexities associated with managing the geographic separation of the combined businesses and consolidating multiple physical locations where management may determine consolidation is desirable; | |
• | difficulties in integrating personnel from different corporate cultures while maintaining focus on providing consistent, high quality customer service; | |
• | challenges in demonstrating to customers of BioScrip and to customers of CHS that the merger will not result in adverse changes in customer service standards or business focus; and | |
• | possible cash flow interruption or loss of revenue as a result of change of ownership transitional matters. |
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• | incur indebtedness or liens; | |
• | make investments or capital expenditures; | |
• | engage in mergers, acquisitions or asset sales; | |
• | declare dividends or redeem or repurchase capital stock; | |
• | enter into transactions with affiliates; | |
• | modify our organizational documents; and | |
• | change our fiscal year. |
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• | the ongoing business of BioScrip may be adversely affected; and | |
• | BioScrip may be required, under certain circumstances, to pay CHS a termination fee of up to $1 million. |
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• | current and prospective employees of CHS and its direct and indirect subsidiaries may experience uncertainty about their future roles with BioScrip, which might adversely affect the ability of CHS to retain key personnel and attract new personnel; |
• | current and prospective customers of CHS may experience uncertainty about the ability of CHS to meet their needs, which might cause customers to seek other suppliers for the products and services provided by CHS; and |
• | management’s attention has been focused on the merger, which may divert management’s attention from the core business of CHS and other opportunities that could have been beneficial to CHS. |
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• | our high level of indebtedness; | |
• | our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility and other debt agreements; | |
• | our ability to hire and retain key employees; | |
• | changes in state or federal legislation or regulations, including changes in pharmaceutical healthcare regulations; | |
• | the outcome of lawsuits and governmental investigations; | |
• | general economic conditions and inflation, interest rate movements and access to capital; | |
• | our ability to consummate the merger with CHS and realize the benefits of the merger, including anticipated synergies, cost savings and accretion to reported earnings estimated to result from the merger; | |
• | our revenues following the merger; | |
• | the effect of competition among pharmaceutical healthcare companies; | |
• | the integration of the businesses of CHS with BioScrip’s business; and | |
• | other risks and uncertainties described from time to time in our filings with the SEC. |
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Proposal No. 1 | To approve the issuance of up to approximately 12.9 million shares of BioScrip common stock, par value $0.0001 per share (subject to increase as described in this proxy statement if net indebtedness of CHS is less than $132 million at closing), as well as 3,400,945 shares of common stock to be issued upon exercise of warrants to be issued to the Stockholders and certain optionholders of CHS, pursuant to the Agreement and Plan of Merger. | |
Proposal No. 2 | To approve an adjournment of the special meeting of stockholders for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting of stockholders to approve Proposal No. 1. |
• | Submitting a Proxy by Telephone: You can submit a proxy for your shares by telephone until 11:59 p.m. Eastern Time on , 2010 by calling the toll-free telephone number on the enclosed proxy card. Telephone proxy submission is available 24 hours a day.Easy-to-follow voice prompts allow you to submit a proxy for your shares and confirm that your instructions have been properly recorded. Our telephone proxy submission procedures are designed to authenticate stockholders by using individual control numbers. | |
• | Submitting a Proxy via the Internet: You can submit a proxy via the Internet until 11:59 p.m. Eastern Time on , 2010 by accessing the web site listed on your proxy card and following the instructions you will find on the web site. Internet proxy submission is available 24 hours a day. As with telephone proxy submission, you will be given the opportunity to confirm that your instructions have been properly recorded. |
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• | Submitting a Proxy by Mail: If you choose to submit a proxy by mail, simply mark the enclosed proxy card, date and sign it, and return it in the postage paid envelope provided. | |
• | By casting your vote in any of the three ways listed above, you are authorizing the individuals listed on the proxy to vote your shares in accordance with your instructions. |
• | Delivering a written notice of revocation to the Secretary of BioScrip, dated later than the proxy, before the vote is taken at the special meeting; | |
• | Delivering a duly executed proxy to the Secretary of BioScrip bearing a later date, before the vote is taken at the special meeting; | |
• | Submitting a proxy on a later date by telephone or via the Internet (only your last telephone or Internet proxy will be counted), before 11:59 p.m. Eastern Time on , 2010; or | |
• | Attending the special meeting and voting in person. Your attendance at the special meeting, in and of itself, will not revoke the proxy. |
100 Clearbrook Road
Elmsford, New York 10523
Attention: Corporate Secretary
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• | $110.0 million in cash; | |
• | $118.2 million in BioScrip common stock, based on the volume weighted average price of the common stock over the ten day trading period ending on the last trading date prior to the date of execution of the merger agreement; |
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• | the repayment of $131.8 million in CHS net debt; and | |
• | 1.343 million warrants with a 5 year term exercisable for BioScrip common stock at $10 per share (with a value of approximately $5 million at 66% volatility). |
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• | Mr. Holubiak, the chair of the committee, outlined for the directors the rationale for the merger and discussed the steps that BioScrip’s management and the committee had taken since October 2009 in connection with the transaction; | |
• | Representatives of Jefferies & Company updated the board of directors on developments in the transaction, including the pro forma financial impact of the merger based on a $365 million transaction value and the key underlying assumptions thereof, the consideration to be paid to the Stockholders in the merger and the sources thereof, a Stockholder equity ownership analysis, an accretion/dilution analysis on both a cash and GAAP basis, and the post-merger pro forma leverage profile, and presented several case studies of recent transformational health care transactions; | |
• | Mr. Rosenbaum, our chief financial officer, discussed the results of the due diligence review of CHS conducted by BioScrip, a third party advisor and the law firms representing BioScrip in the transaction, including the resolutions of certain significant issues; | |
• | Mr. Posner, our general counsel, answered all questions regarding the key terms of the merger agreement as set forth in a presentation prepared by King & Spalding; and | |
• | Mr. Smith discussed developments in the post-merger integration planning. |
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• | Mr. Holubiak reported to the board of directors that the corporate strategy committee had determined to recommend to the board of directors that it approve CHS merger and the related agreement and plan of merger. | |
• | Representatives of Jefferies & Company updated the board of directors on the transaction value based on the ten day volume weighted average price of BioScrip’s common stock through Friday, January 22, 2010; reviewed with the board its financial analysis of the merger consideration; and rendered to the board an oral opinion, confirmed by delivery of a written opinion, dated January 24, 2010, to the effect that, as of that date and based on and subject to the factors, assumptions, limitations and other considerations to be described in the written opinion, the merger consideration to be paid by BioScrip pursuant to the Agreement and Plan of Merger was fair, from a financial point of view, to BioScrip. | |
• | Mr. Rosenbaum and representatives of Jefferies & Company updated the board of directors on the terms of the debt financing outlined in the commitment letter provided by Jefferies Finance, and the state of the credit markets; and | |
• | Mr. Friedman and Mr. Smith discussed the likely financial impact of the merger upon our financial condition, results of operations, cash flow and stockholders’ equity. |
• | historical information concerning the businesses, prospects, financial performance and condition, operations, management and the competitive position of CHS; |
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• | the anticipated financial condition, results of operations and businesses of BioScrip after giving effect to the transaction; | |
• | the fact that the merger with CHS is consistent with and will further our strategic objective to be the clinical leader in infusion, oral and injectable specialty pharmacy services and care management programs and will transform BioScrip into one of the largest home infusion providers in the U.S.; | |
• | the fact that the merger with CHS will create one of the country’s largest leading independent, broad-based specialty distribution and home infusion and home health providers, thereby providing us with a greater competitive edge vis-à-vis our competitors; | |
• | the expansion of BioScrip’s national footprint by creating a specialty pharmacy and home infusion platform with the ability to cross-sell all of our services to large national health insurers on a national basis; | |
• | the potential opportunities for growth and expansion as a result of the concentration on higher margin therapies, resulting in overall increased margins; | |
• | broadened clinical experience; | |
• | the opinion of Jefferies & Company and its presentation dated January 24, 2010, to the board of directors that, as of January 24, 2010, and based on and subject to various assumptions made, matters considered and limitations set forth in the opinion, the consideration to be paid by BioScrip pursuant to the Agreement and Plan of Merger was fair, from a financial point of view, to BioScrip. For a more detailed description of the fairness opinion, see the section entitled “— Opinion of BioScrip’s Financial Advisor”; | |
• | the expected synergies of the merger, including purchasing and volume discounts, and an expanded resource base and infrastructure resulting from the acquisition of 35 additional infusion centers, including 16 ambulatory infusion locations, and 33 home health agency offices; | |
• | the fact that, as a result of the merger, BioScrip will be well-positioned to benefit from healthcare reform legislation that alters the regulatory framework of the industries in which we operate; | |
• | the depth of experience of the combined management teams of BioScrip and CHS, including specifically with respect to the integration, operation and expansion of home infusion and home health providers; | |
• | the terms and conditions of the Agreement and Plan of Merger generally, including the parties’ representations, warranties and covenants and the circumstances in which BioScrip would be entitled to indemnification for breaches of the representations, warranties or covenants of CHS or its stockholders; | |
• | the terms and conditions of obtaining financing for the transaction, including the costs and expenses of such financing as contemplated under the commitment letter; and | |
• | the results of financial, legal and operational due diligence on CHS performed by our senior management, legal counsel and financial advisor. |
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• | repay the net indebtedness of CHS, which was approximately $132 million at December 31, 2009, and enter into a new credit facility; | |
• | pay cash consideration of $110 million, subject to adjustment as described below; | |
• | issue up to approximately 12.9 million shares of BioScrip common stock, subject to adjustment as described below, of which 2,696,516 shares initially will be held in escrow to fund indemnification payments, if any; and | |
• | issue warrants to acquire 3,400,945 shares of BioScrip common stock, exercisable at $10 per share and having a five-year term. |
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• | BioScrip, Inc; | |
• | Catalyst Health Solutions, Inc.; | |
• | Express Scripts, Inc.; | |
• | MedcoHealth Solutions, Inc.; | |
• | SXC Health Solutions, Corp. |
• | Amedisys, Inc.; | |
• | Almost Family, Inc.; | |
• | Gentiva Health Services, Inc.; | |
• | LHC Group, Inc. |
• | the enterprise value divided by estimated adjusted Earnings Before Interest, Tax, Depreciation, and Amortization, or EBITDA, for calendar year 2009 (“Total Enterprise Value/CY2009E EBITDA”); and | |
• | the enterprise value divided by projected adjusted EBITDA for calendar year 2010 (“Total Enterprise Value/CY2010P EBITDA”). |
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Benchmark | High | Low | Median | |||||||||
Total Enterprise Value/CY2009E EBITDA | 16.3 | x | 6.7 | x | 11.5 | x | ||||||
Total Enterprise Value/CY2010P EBITDA | 12.1 | x | 6.4 | x | 9.2 | x |
Target | Acquiror | Month and Year Announced | ||
Allion Healthcare, Inc. | H.I.G. Capital, LLC | October 2009 | ||
Biomed America, Inc. | Allion Healthcare, Inc. | March 2008 | ||
Critical Care Systems, Inc. | Accredo Health Group, Inc. | November 2007 | ||
Coram, Inc. | Apria Healthcare Group, Inc. | October 2007 | ||
HomeChoice Partners, Inc. | DaVita, Inc. | September 2007 | ||
Option Care, Inc. | Walgreen Co. | July 2007 | ||
CCS Medical Holdings, Inc./MP TotalCare Inc. | Warburg Pincus LLC | October 2005 | ||
Priority Healthcare Corp. | Express Scripts, Inc. | July 2005 | ||
Accredo Health, Inc. | MedcoHealth Solutions, Inc. | February 2005 | ||
CuraScript, Inc. | Express Scripts, Inc. | December 2003 |
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Target | Acquiror | Month and Year Announced | ||
Tender Loving Care Health Care Services, Inc. | Amedisys, Inc. | February 2008 | ||
Home Health Care Affiliates, Inc. | Gentiva Health Services, Inc. | February 2008 | ||
VistaCare, Inc. | Odyssey Healthcare, Inc. | January 2008 | ||
Encompass Home Health, Inc. | Thoma Cressey Bravo | August 2007 | ||
Integricare, Inc. | Amedisys, Inc. | August 2007 | ||
Pediatric Services of America, Inc. | Portfolio Logic Management LLC | April 2007 | ||
The Healthfield Group, Inc. | Gentiva Health Services, Inc. | January 2006 | ||
Housecall Medical Resources, Inc. | Amedisys, Inc. | July 2005 | ||
Tender Loving Care Health Care Services, Inc. | Arcapita Bank, Corp. Investment Arm | March 2004 |
Benchmark | High | Low | Median | |||||||||
Transaction Value/LTM EBITDA | 16.4 | x | 6.3 | x | 13.8 | x | ||||||
Transaction Value/FY EBITDA | 15.7 | x | 6.0 | x | 10.7x |
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Year First | Term as Director | |||||||||||||
Name | Age | Position with BioScrip | Became Director | Will Expire(1) | ||||||||||
Richard H. Friedman | 59 | Chief Executive Officer and Chairman of the Board of Directors | 1996 | 2010 | ||||||||||
Charlotte W. Collins | 57 | Director | 2003 | 2010 | ||||||||||
Louis T. DiFazio | 72 | Director | 1998 | 2010 | ||||||||||
Myron Z. Holubiak | 63 | Director | 2005 | 2010 | ||||||||||
David R. Hubers | 67 | Director | 2005 | 2010 | ||||||||||
Richard L. Robbins | 69 | Director | 2005 | 2010 | ||||||||||
Stuart A. Samuels | 68 | Director | 2005 | 2010 | ||||||||||
Richard M. Smith | 50 | Chief Operating Officer and Director | 2009 | 2010 |
(1) | Directors’ terms of office are scheduled to expire at the annual meeting of stockholders to be held in the year indicated. |
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• | no gain or loss will be recognized by BioScrip or CHS as a result of the merger; | |
• | a U.S. holder of CHS common stock generally will recognize gain (but not loss) on the receipt of BioScrip common stock, cash and warrants to purchase BioScrip common stock in exchange for CHS common stock, with the amount of taxable gain limited to the lesser of (i) the excess, if any, of the amount of cash plus the fair market value of BioScrip common stock and warrants received in the merger over the holder’s tax basis in CHS common stock, and (ii) the amount of cash received by the U.S. holder in the merger (excluding cash received in lieu of fractional shares of BioScrip common stock); and | |
• | the amount of gain of a U.S. holder of CHS common stock in excess of such limitation will not be taxable. |
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• | repay the net indebtedness of CHS, which was approximately $132 million at December 31, 2009, and enter into a new credit facility; | |
• | pay cash consideration of $110 million, subject to adjustment as described below; | |
• | issue up to approximately 12.9 million shares of BioScrip common stock, subject to adjustment as described below, of which 2,696,516 shares initially will be held in escrow to fund indemnification payments, if any; and | |
• | issue warrants to acquire 3,400,945 shares of BioScrip common stock, exercisable at $10 per share and having a five-year term. |
• | the common stock to be issued will have voting power equal to or greater than 20% of the voting power of the corporation outstanding before the issuance; or | |
• | the number of shares of common stock to be issued will be equal to or greater than 20% of the number of shares of common stock outstanding before the issuance. |
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• | repay the net indebtedness of CHS, which was approximately $132 million at December 31, 2009, and enter into a new credit facility; | |
• | pay cash consideration of $110 million, subject to adjustment as described below; | |
• | issue up to approximately 12.9 million shares of BioScrip common stock, subject to adjustment as described below, of which 2,696,516 shares initially will be held in escrow to fund indemnification payments, if any; and |
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• | issue warrants to acquire 3,400,945 shares of BioScrip common stock, exercisable at $10 per share and having a five-year term. |
• | with regard to those Stockholders that are not individuals, proper organization and existence; | |
• | with regard to those Stockholders that are not individuals, enforceability of the Agreement and Plan of Merger; | |
• | with regard to those Stockholders that are not individuals, due authorization, execution and delivery of the Agreement and Plan of Merger; | |
• | absence of defaults or conflicts; | |
• | authorizations and approvals; | |
• | ownership of CHS’s shares; and | |
• | absence of plan to distribute BioScrip’s shares and accredited investor status. |
• | proper corporate organization and existence; | |
• | the capitalization of CHS; | |
• | subsidiaries of CHS; | |
• | enforceability of the Agreement and Plan of Merger; | |
• | due authorization, execution and delivery of the Agreement and Plan of Merger; |
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• | absence of defaults or conflicts; | |
• | authorizations and approvals; | |
• | financial statements and undisclosed liabilities; | |
• | intellectual property; | |
• | compliance with laws; | |
• | material contracts, agreements and instruments of CHS and its subsidiaries; | |
• | litigation; | |
• | taxes; | |
• | permits and licenses; | |
• | participation in federal and state healthcare programs and third party payor participation; | |
• | healthcare regulatory matters; | |
• | compliance with healthcare laws, including Medicare, Medicaid and HIPAA, and billing practices; | |
• | healthcare licenses; | |
• | labor and employment matters; | |
• | employee benefit plans; | |
• | environmental matters; | |
• | real property; | |
• | insurance; | |
• | transactions with affiliates; | |
• | absence of certain changes or events; | |
• | banks and power of attorneys; | |
• | corporate records; | |
• | accounts receivable; | |
• | assets other than real property; | |
• | brokers and intermediaries; and | |
• | absence of sensitive payments by CHS, subsidiaries of CHS or affiliates of CHS. |
• | proper corporate organization and existence; | |
• | enforceability of the Agreement and Plan of Merger; | |
• | due authorization, execution and delivery of the Agreement and Plan of Merger; | |
• | capitalization of BioScrip; | |
• | capitalization and operations of Camelot; | |
• | Board of Director approvals; |
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• | absence of defaults or conflicts; | |
• | authorizations and consents; | |
• | financial statements and undisclosed liabilities; | |
• | absence of certain changes or events; | |
• | permits and licenses; | |
• | compliance with laws; | |
• | absence of sensitive payments by BioScrip, subsidiaries of BioScrip or affiliates of BioScrip; | |
• | taxes; | |
• | brokers and intermediaries; | |
• | sufficiency of funds; | |
• | litigation; | |
• | SEC filings; | |
• | healthcare and regulatory matters; | |
• | employee benefit plans; | |
• | insurance; | |
• | absence of reliance on information provided by Stockholders; | |
• | required shareholder vote; and | |
• | the Investment Company Act of 1940, as amended (the “Investment Company Act”). |
• | issue, sell or pledge, or authorize or propose the issuance, sale or pledge of additional shares of capital stock of any class, or securities convertible into or exchangeable for shares, rights, warrants or options to acquire shares or convertible securities; | |
• | redeem, purchase or otherwise acquire any outstanding shares of capital stock of CHS or its subsidiaries; | |
• | amend the organizational documents of CHS or any of its subsidiaries; | |
• | incur any indebtedness (other than ordinary course consistent with past practice borrowings and other performance bonds or letters of credit entered into in the ordinary course of business consistent with past practice); | |
• | increase in any material manner the compensation of any employees or directors except as may be required under existing employment agreements or increases forrank-and-file employees as a granted in the ordinary course of business consistent with past practice; |
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• | pay or agree to pay any pension, retirement allowance, retention or severance benefit or other employees benefit not provided for under the terms of an employee benefit plan of CHS other than in the ordinary course of business consistent with past practice; | |
• | enter into, adopt or amend any employment, bonus, severance or retirement contract or adopt any employee benefit plan other than in the ordinary course of business consistent with past practice or as required by law; | |
• | other than in the ordinary course of business consistent with past practice, sell, lease, transfer or otherwise dispose of or subject to any lien (other than a permitted lien) any material property or asset; | |
• | acquire any business, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner, in a single transaction or a series of related transactions; | |
• | other than in the ordinary course of business consistent with past practice, make any loans, advances or capital contributions, except for travel and other normal business expenses to officers and employees; | |
• | make any change in any method of accounting other than those required by GAAP; | |
• | other than in the ordinary course of business consistent with past practice, amend or modify certain material contracts; | |
• | other than in the ordinary course of business consistent with past practice, make any capital expenditures in excess of $250,000 individually or $1,000,000 in the aggregate in any fiscal quarter; | |
• | other than in the ordinary course of business consistent with past practice, make any payment of its accounts payable or take receipt of its accounts receivable, or otherwise make any change in the treatment or handling of either of them; | |
• | declare, pay or otherwise make any dividend or distribution to the Stockholders; and | |
• | authorize, propose or agree in writing to take any of the foregoing actions. |
• | issue, sell or pledge, or authorize or propose the issuance, sale or pledge of additional shares of capital stock of any class, or securities convertible into or exchangeable for shares, rights, warrants or options to acquire shares or convertible securities; | |
• | redeem, purchase or otherwise acquire any outstanding shares of capital stock of BioScrip and its subsidiaries; | |
• | amend the organizational documents of BioScrip or any of its subsidiaries; | |
• | adopt any amendment to the Rights Agreement, dated December 3, 2002, by and between BioScrip and American Stock Transfer & Trust Company, as Rights Agent, as amended (the “Rights Agreement”), other than the amendment expressly required by the Agreement and Plan of Merger; | |
• | incur any indebtedness (other than in connection with debt financing for the merger with CHS, ordinary course consistent with past practice borrowings and other performance bonds or letters of credit entered into in the ordinary course of business consistent with past practice); | |
• | other than in the ordinary course of business consistent with past practice, sell, lease, transfer or otherwise dispose of or subject to any lien (other than a permitted lien) any material property or asset; | |
• | acquire any business, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner, in a single transaction or a series of related transactions; |
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• | declare, pay or otherwise make any dividend or distribution to its stockholders; and | |
• | authorize, propose or agree in writing to take any of the foregoing actions. |
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• | the representations and warranties of the Stockholders and CHS being true and correct as of the date of closing, or, to the extent they expressly relate to a specific date, then as of that specific date, with only these exceptions which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect. | |
• | CHS and the Stockholders having performed and complied in all material respects with the agreements and covenants required by the Agreement and Plan of Merger to be performed and complied with on or before the closing; | |
• | the Stockholders’ Representative and CHS having delivered the appropriate officer’s certificates to BioScrip; | |
• | any waiting period under the HSR Act applicable to the merger having terminated or expired; | |
• | on the date of closing, there existing no injunctions or other order issued by any government authority or court of competent jurisdiction which prohibits the consummation of the merger or materially deprives BioScrip of the benefits of the merger; | |
• | BioScrip having received payoff letters with respect to the payment of the aggregate outstanding principal, and accrued interest and other amounts payable in respect of certain CHS credit agreements and the release of any liens related thereto; | |
• | BioScrip having received either (a) a statement by CHS certifying that it is not, and has not been during the time period specified, a United States real property holding corporation or (b) a certificate of non-foreign status from each Stockholder; | |
• | all required licenses, permits, consents, authorizations, approvals, qualifications and orders of governmental authorities and certain other persons having been obtained; | |
• | CHS having delivered to BioScrip a certificate of the Secretary of CHS; | |
• | the Escrow Agreement having been executed and delivered by the Stockholders’ Representative; | |
• | the Stockholders’ Agreement having been executed and delivered by each of the Stockholders and any holders of CHS stock options, if any, receiving shares of BioScrip’s common stock in connection with the merger with CHS; | |
• | BioScrip having received the proceeds of the debt financing on the specified terms; |
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• | BioScrip having received the opinion of King & Spalding LLP to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code; | |
• | BioScrip having received the audited consolidated balance sheet of CHS and its subsidiaries as of December 31, 2009 and the related audited consolidated statements of income, shareholders’ equity and cash flows of CHS and its subsidiaries for the year then ended, together with the notes and schedules thereto and an unqualified audit opinion of its independent registered public accounting firm with respect thereto; | |
• | BioScrip having receive the accountants’ consent and “comfort” letters that have been reasonably requested under the Agreement and Plan of Merger prior to the closing date in connection with the debt financing; and | |
• | in the event that the Stockholders would receive BioScrip common stock valued at the Applicable Stock Value as a result of cash amounts that otherwise would have been paid to the Stockholders causing the Threshold Percentage to be lower than 40.5% at the time of such payments, the Applicable Stock Value (as determined at 4:00 p.m. as of the last trading day immediately preceding the scheduled date of closing, and as adjusted for splits, conversions and reverse splits) not being less than $5.2151. |
• | the representations and warranties of BioScrip being true and correct in all material respects as of the date of closing, or, to the extent they expressly related to a specific date, then as of the specific date, with only those exceptions which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect; | |
• | BioScrip and Camelot having performed and complied with the agreements and covenants required by the Agreement and Plan of Merger to be performed and complied with; | |
• | BioScrip having delivered the appropriate officer’s certificate to CHS; | |
• | any waiting period under the HSR Act applicable to the merger having been terminated or expired; | |
• | on the date of closing, there existing no injunctions or other order issued by any government authority or court of competent jurisdiction which prohibits the consummation of the merger; | |
• | all required licenses, permits, consents, authorizations, approvals, qualifications and orders of governmental authorities and certain persons having been obtained; | |
• | BioScrip having delivered to CHS a certificate of the Secretary of BioScrip; | |
• | the Escrow Agreement having been executed and delivered by the Stockholders’ Representative and BioScrip; | |
• | the Stockholders’ Agreement having been executed and delivered by each of the Stockholders and any holders of CHS stock options, if any, receiving shares of BioScrip’s common stock in connection with the merger with CHS; | |
• | BioScrip having received the proceeds of the debt financing on the specified terms; | |
• | the BioScrip stockholders having approved the BioScrip stock issuance proposal; | |
• | CHS having received the opinion of Paul, Weiss to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code; and | |
• | the per share price (as determined at 4:00 pm as of the relevant date) of BioScrip’s common stock on NASDAQ (as adjusted for splits, conversions and reverse splits) not being less than $5.2151 for the 10 trading days immediately preceding the scheduled date of closing. |
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• | by mutual written consent of BioScrip and the Stockholders’ Representative; or | |
• | by either BioScrip or the Stockholders’ Representative if the closing date has not occurred on or before June 30, 2010 (subject to extension by mutual agreement in the event of regulatory or antitrust issues), but only if the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Agreement and Plan of Merger; or | |
• | subject to BioScrip’s obligations relating to challenges to the merger as violative of antitrust laws, by BioScrip or the Stockholders’ Representative if a court of competent jurisdiction or other governmental authority has issued an order or injunction or taken any other action (which order, injunction or action the parties will use their commercially reasonable efforts to lift) permanently restraining, enjoining or otherwise prohibiting the transactions contemplated under the Agreement and Plan of Merger and such order or action has become final and nonappealable; or | |
• | by the Stockholders’ Representative, if neither CHS nor any of the Stockholders is then in material breach of any term of the Agreement and Plan of Merger, upon written notice to BioScrip, upon a material breach of any representation, warranty or covenant of BioScrip contained in the Agreement and Plan of Merger such that the conditions to closing set forth in Agreement and Plan of Merger cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by the Stockholders’ Representative to BioScrip; or | |
• | by BioScrip, if BioScrip is not then in material breach of any term of the Agreement and Plan of Merger, upon written notice to Stockholders’ Representative, upon a material breach of any representation, warranty or covenant of CHS or the Stockholders contained in the Agreement and Plan of Merger such that the conditions to closing set forth in Agreement and Plan of Merger cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by BioScrip to the Stockholders’ Representative; or | |
• | by the Stockholders’ Representative or BioScrip if the BioScrip stock issuance proposal has been submitted to the BioScrip stockholders for adoption by written consent or at a duly convened special meeting of stockholders (or adjournment thereof) and the approval of the BioScrip stockholders was not obtained. |
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• | pursuant to one or more registered secondary public offerings in connection with the exercise of the registration rights described below under the heading “— Registration Rights”; | |
• | pursuant to one or more private placements exempt from the registration requirements of the Securities Act and the rules and regulations promulgated thereunder, including Rule 144 under the Securities Act (subject to BioScrip’s right to receive from the Stockholder making such transfer an opinion of counsel reasonably acceptable in form and substance to BioScrip that registration under the Securities Act is not required in connection with such transfer); | |
• | in the case of any CHS Stockholder who is an individual, to a member of such CHS Stockholder’s immediate family or to a trust, corporation, partnership or limited liability company, all of the beneficial interests in which are held by such CHS Stockholder or by one or more members of such CHS Stockholder’s immediate family; | |
• | to any of such CHS Stockholder’s affiliates; or | |
• | in the case of Blackstone Mezzanine Partners II, L.P., Blackstone Mezzanine Holdings II, L.P. and S.A.C. Domestic Capital Funding, Ltd. (the “Institutional Stockholders”), in connection with a pledge or collateral assignment of shares of BioScrip’s common stock to a third party lender or other financing source, or any foreclosure or other exercise of rights or remedies by a permitted pledgee or assignee whereby shares of BioScrip’s common stock are further sold, assigned or conveyed. |
• | effect, offer, propose or cause or participate in, or assist any other person to effect, offer or propose or participate in (i) any acquisition or any proposal to acquire any debt or equity securities of BioScrip after the closing (other than through the exercise of warrants as described under the section entitled “The Warrant Agreement” or the options to purchase CHS common stock that will be assumed by BioScrip at the closing of the merger with CHS and converted into options to purchase BioScrip common stock (each, a “Roll Over Option”)); (ii) any tender or exchange offer for debt or equity securities of BioScrip; (iii) any merger, consolidation, share exchange or business combination |
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involving BioScrip or any material portion of its business or any purchase of all or any substantial part of the assets of BioScrip; (iv) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to BioScrip or any material portion of its business; or (v) any solicitation of proxies with respect to BioScrip or any action resulting in such person or entity becoming a participant in any election contest with respect to BioScrip; |
• | propose or make any recommendation with respect to any matter for submission to a vote of stockholders of BioScrip; | |
• | form, join or participate in a group with respect to any shares of BioScrip’s common stock, other than any group consisting solely of a CHS Stockholder and its affiliates; | |
• | grant any proxy with respect to any share of BioScrip common stock to any person or entity not designated by BioScrip, other than a revocable proxy authorizing a representative of a CHS Stockholder to vote at a meeting of stockholders of BioScrip in the ordinary course of business; | |
• | deposit any shares of BioScrip’s common stock in a voting trust or subject any such shares to any arrangement or agreement with respect to the voting of such shares, except for agreement solely among the CHS Stockholders and BioScrip and except for the permitted transfers described above under the heading “— Transfer Restrictions”; | |
• | execute any written stockholder consent with respect to BioScrip; | |
• | take any other action to seek to affect the control of BioScrip (other than in connection with any director nominated by the Stockholders’ Representative acting in accordance with such director’s fiduciary duties); | |
• | enter into any discussions, negotiations, arrangements or understandings with any person with respect to any of the restrictions described above, or advise, or advise, assist, encourage or seek to persuade others to take any action with respect to the restrictions described above; | |
• | disclose to any person any intention, plan or arrangement inconsistent with the restrictions described above that would result in any CHS Stockholder or BioScrip being required to make any such disclosure in any filing (other than a filing required under Sections 13 or 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in connection with a permitted transfer) with a governmental authority or exchange or being required by applicable law to make a public announcement with respect thereto; or | |
• | request BioScrip or any of its affiliates, directors, officers, employees, representatives, advisors or agents, directly or indirectly, to amend or waive in any respect the Stockholders’ Agreement or the certificate of incorporation or the bylaws of BioScrip or any of its affiliates. |
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• | to keep adequate reserves of authorized and unissued shares or treasury shares so as to permit the exercise in full of all warrants issued under the Warrant Agreement into BioScrip common stock; | |
• | to take all such action as may be necessary to ensure that all shares of BioScrip common stock delivered upon the exercise of any warrant will be (i) duly and validly authorized and issued and fully paid and nonassessable, free of any preemptive rights or liens and (ii) issued without violation of any applicable law; | |
• | subject to certain exceptions, to pay any and all taxes and charges that may be payable in respect of the initial issuance and delivery of each warrant certificate and each share of BioScrip common stock issued upon the exercise of any warrant; | |
• | upon any holder’s exercise of warrants, to cause such holder to become a record holder of the shares of BioScrip common stock issued upon such exercise; | |
• | except as otherwise set forth in the Stockholders’ Agreement described above in the section entitled “The Stockholders’ Agreement,” that prior to the exercise of any warrants, the holder of such warrants will not be entitled to any rights of a stockholder of BioScrip with respect to the common stock into which such warrants will be exercisable; and | |
• | not to avoid or seek to avoid the observance or performance of any of the terms of the Warrant Agreement by amendment of its charter or bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, and to at all times in good faith carry out the provisions of the Warrant Agreement. |
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• | that at any time that BioScrip conducts a meeting of, or otherwise seeks a vote or consent of, its stockholders for the purpose of approving and adopting the transactions contemplated by the Agreement and Plan of Merger, such Management Stockholder will vote, or provide a consent with respect to, all of the shares of BioScrip common stock then owned by such Management Stockholder (the “Shares”) (i) in favor of the transactions contemplated by the Agreement and Plan of Merger and (ii) against any action or agreement that would compete with, impede, delay or interfere with the approval and adoption of the transactions contemplated by the Agreement and Plan of Merger; and | |
• | that at the first annual meeting of BioScrip’s stockholders following the closing of the merger with CHS, such Management Stockholder will vote his shares in favor of each of the director nominees designated by the Stockholders’ Representative. |
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HAS UNANIMOUSLY APPROVED THE ISSUANCE OF BIOSCRIP
COMMON STOCK AND RECOMMENDS THAT YOU
VOTE “FOR” PROPOSAL NO 1.
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PROPOSAL TO ADJOURN THE SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSAL NO. 1.
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• | Through its home infusion therapy segment, CHS delivers complex intravenous pharmaceutical products and corresponding clinical support services to patients. CHS delivers and provides infusion services to patients with chronic conditions requiring long-term infusion care services, such as pain management and parenteral nutrition, and acute conditions requiring short-term infusion care services, such as antibiotic therapy, post-operative pain management, chemotherapy and obstetrical therapy. In the nine months ended September 30, 2009, the home infusion therapy segment represented approximately 74% of CHS’s net revenue. | |
• | Through its home nursing segment, CHS provides skilled nursing and other therapy services to adult and pediatric patients. These services include skilled nursing, physical therapy, occupational and speech therapy, medical social work and home health aide services. Home nursing services are delivered to recovering, disabled, chronically ill or terminally ill patients in need of medical, nursing or therapeutic treatment, and assistance with essential activities of daily living. In the nine months ended September 30, 2009, the home nursing segment represented approximately 26% of CHS’s net revenue. |
• | Patients— CHS improves its patients’ quality of life by allowing them to remain at home while receiving the necessary medications, supplies and services for their treatment. It also helps patients manage their conditions through ongoing caregiver counseling and education regarding their treatment and provides ongoing monitoring to encourage patients to comply with their prescribed therapy. | |
• | Payors— CHS offers payors a comprehensive approach to meeting their home health care service needs and help them reduce their costs. Providing infusion pharmacy services in the patient’s home is generally more cost-effective than providing these therapies in an acute orsub-acute setting. Furthermore, CHS is responsive to payors’ service needs and provide them with customer satisfaction survey results, which assists them in meeting National Committee for Quality Assurance standards. | |
• | Physicians— CHS assists physicians with the administration of time-intensive and costly care management support. CHS’s patient monitoring and educational programs can help improve patient compliance with therapy protocols. CHS also provides physicians with important ongoing feedback related to their patients’ medical conditions, enabling them to better understand their patients’ conditions. |
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• | A leading presence in the market for home infusion therapy products and services. CHS believes it is one of the leading providers by revenue of home infusion therapy products and services. CHS expects that its increasing scale will enhance its ability to achieve operating efficiency in areas such as regulatory compliance and operating systems, increase its purchasing power with suppliers and pharmaceutical wholesalers and manufacturers and improve its competitive positioning for national payor contracts. | |
• | A focus and reputation for high quality clinical care. CHS believes it has a reputation for high quality care and responsiveness to patient needs. All of its locations are accredited by the Accreditation Commission for Health Care, Inc. Each of its branches has an integrated team of nurses, pharmacists and therapists that have extensive clinical expertise and a commitment to serving the needs of its patients. Additionally, CHS has deployed clinical programs and believes these initiatives have improved quality of care and risk management through the implementation of best practices, which helps actively manage clinical compliance across all of its branch locations. | |
• | An attractive therapeutic focus within the home infusion market. CHS focuses on providing high value infusion therapies and specialty drugs that require complex clinical management. Many of its product offerings and services are designed to treat chronic conditions that require frequent drug administration, such as total parenteral nutritional, cancer and hemophilia. In addition to the recurring therapy requirement, these conditions require ongoing caregiver counseling and education regarding patient treatment and ongoing monitoring to encourage patients to comply with the prescribed therapy, including programs for enteral and total parenteral nutrition and pediatric infusion patients. | |
• | CHS’s business model combines the advantages of a national platform with the benefits of a local clinical services model. CHS’s business model balances the benefits of promoting local responsibility and accountability for quality of care and operating results with the efficiencies gained from centralizing key administrative functions. CHS’s home infusion pharmacies and nursing locations carry locally recognized branding and tailor their respective marketing efforts to address the specific needs of the communities, referral sources, patients and payors they serve. | |
• | Demonstrated ability to identify and integrate acquired businesses. CHS has a demonstrated track record of identifying, evaluating, acquiring and integrating companies in the home health market. CHS attributes part of its success in integrating these companies to its management’s ability to identify leading home infusion companies, operational knowledge and a disciplined approach to due diligence. CHS utilizes a comprehensive post-acquisition strategic plan developed to facilitate the integration of acquired businesses that includes maintaining local brand names, selectively altering product mix, centralizing accounting, purchasing and contracting functions, and transitioning acquired targets onto its information technology platform. |
• | Continuing to focus on CHS’s core high value therapies. BioScrip intends to continue CHS’s focus on delivering its core high value therapies, such as anti-infective, total parenteral and enteral nutrition therapies. CHS has significant clinical experience with these therapies, which BioScrip believes are best managed and delivered on a local basis to patients in their homes due to the complexity and frequency of pharmaceutical administration and need for continued professional monitoring. These therapies collectively represented approximately 51% of CHS’s infusion revenue in the twelve months ended September 30, 2009. BioScrip also intends to continue to expand CHS’s portfolio of high value therapies as additional infusible pharmaceuticals come to market. |
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• | Continuing to operate a local clinical model that emphasizes customized patient care. Each of CHS’s branches utilizes a coordinated team comprised of nurses, therapists and pharmacists designed to locally administer and monitor the medical care of its patient population that frequently suffer from chronic diseases. These local teams are given the flexibility to customize patient care, which BioScrip believes assures the responsiveness, quality and personal touch that BioScrip’s patients expect. | |
• | Continuing to pursue a sales and marketing approach that targets both local and regional referral sources and payor contracts. Growing its business will require BioScrip to maintain strong relations with local and regional referral sources, patients and managed care payors. BioScrip’s sales and marketing strategy focuses on establishing and expanding these relationships. CHS currently has over 85 sales representatives and a large number of payors. | |
• | Expanding CHS’s relationships with national managed care organizations. BioScrip intends to leverage CHS’s current relationships, geographic coverage, clinical expertise and reputation, as well as corporate infrastructure, regulatory expertise and contacts, in order to expand its relationships with national managed care organizations and pursue national contracts with these organizations. CHS also offers clinical disease management for CHS home care therapies, which enhances its relationships with and make it attractive to managed care organizations. | |
• | Pursuing acquisitions of leading independent home infusion therapy providers in contiguous and other strategic markets. BioScrip believes that a substantial portion of the home infusion market consists of independent home infusion providers, and it believes that industry dynamics in the currently fragmented home infusion market favor consolidated providers and the operational efficiencies that come with scale. BioScrip plans to pursue strategic acquisitions of leading independent home infusion providers with established track records in markets contiguous to its existing operations. BioScrip believes acquisitions in contiguous markets can be efficiently integrated into its existing operations and added to its existing managed care contracts and payor and patient platforms. BioScrip also intends to selectively pursue strategic acquisitions where they can increase its presence in an existing market or where entering a new geographic area presents a compelling opportunity for BioScrip. |
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Therapy Type | Description | |
Antibiotic and Anti-infective Therapy | Providing intravenous medication for infections related to diseases such as HIV/AIDS, wounds, cancer, osteomyelitis and the kidney and urinary tract | |
Enteral Nutrition | Delivering nutritional formulas by a tube directly into the stomach or colon | |
Total Parenteral Nutrition | Providing life-sustaining nutrients intravenously to patients with digestive or gastro-intestinal problems, most of whom have chronic conditions requiring treatment for life |
Therapy Type | Description | |
Chemotherapy | Administering pharmaceuticals intravenously or orally to destroy cancer cells; CHS also provides BEAM Therapy, a four day pre-chemotherapy treatment given in advance of stem cell transplantation | |
Intravenous Immune Globulins (IVIG) Therapy | Administrating blood derivative products to patients with immune deficiency or altered immune status, who usually must receive therapy for life | |
Pain Management | Providing analgesic pharmaceuticals by intravenous or continuous injection therapy, delivered by a pump, to reduce pain and to manage symptoms resulting from either malignant or nonmalignant diseases |
Therapy Type | Description | |
Respiratory Syncytial Virus (RSV) Prevention | RSV is a major cause of respiratory disease in young children and infants. Treatment commonly consists of monthly injections of Synagis®, a specialty pharmaceutical distributed throughout the “RSV season,” which lasts from approximately October through April | |
Respiratory Therapy/Home Medical Equipment | Providing oxygen systems, continuous or bi-level positive airway pressure devices, nebulizers, home ventilators, respiratory devices, respiratory medications and other medical equipment |
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• | skilled nursing care; |
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• | physical, occupational, and speech therapy; | |
• | medical social work; and | |
• | home health aide services. |
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Date of | Entity | Business | Service | |||
Acquisition | Acquired | Segment(s) | Areas | |||
January 2007 | Deaconess | Home Infusion, Home Nursing | Alabama, Georgia, Louisiana, Michigan, Mississippi, Ohio, Pennsylvania, Tennessee, Texas | |||
March 2007 | Infusion Solutions | Home Infusion | New Hampshire, Massachusetts | |||
June 2007 | Applied | Home Infusion | Texas | |||
July 2007 | Infusion Partners of Brunswick | Home Infusion | Georgia | |||
July 2007 | Infusion Partners of Melbourne | Home Infusion | Florida | |||
August 2007 | East Goshen Pharmacy | Home Infusion | Pennsylvania | |||
April 2008 | Wilcox Medical | Home Infusion | Vermont | |||
September 2008 | Infusion Partners of Lexington | Home Infusion | Kentucky | |||
December 2008 | National Health Infusion | Home Infusion | Florida | |||
June 2009 | Option Health | Home Infusion, Home Nursing | Illinois, Iowa |
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September 30, | December 31, | |||||||
Aging Category | 2009 | 2008 | ||||||
<31 days | $ | 18,420 | $ | 22,216 | ||||
31-60 days | 6,375 | 8,123 | ||||||
61-90 days | 4,371 | 5,549 | ||||||
>90 days | 14,680 | 21,755 | ||||||
Total accounts receivable, gross | 43,846 | 57,643 | ||||||
Allowance for uncollectible accounts | (6,435 | ) | (9,675 | ) | ||||
Allowance for contractual adjustments | (882 | ) | (982 | ) | ||||
Unbilled and other | 6,063 | 5,085 | ||||||
Total accounts receivable, net | $ | 42,592 | $ | 52,071 | ||||
Aging Category | Medicare | Medicaid | Commercial and Other | Self Pay | ||||||||||||
<31 days | $ | 4,716 | $ | 3,761 | $ | 9,483 | $ | 459 | ||||||||
31-60 days | 1,695 | 1,494 | 2,938 | 249 | ||||||||||||
61-90 days | 1,239 | 819 | 2,048 | 265 | ||||||||||||
>90 days | 1,777 | 3,092 | 8,554 | 1,257 | ||||||||||||
Total accounts receivable, gross | $ | 9,427 | $ | 9,166 | $ | 23,023 | $ | 2,230 | ||||||||
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Nine Months Ended | ||||||||||||||||
September 30, | Increase/ | |||||||||||||||
2009 | 2008 | Decrease | % | |||||||||||||
Home infusion | $ | 138,497 | $ | 117,165 | $ | 21,332 | 18.2 | % | ||||||||
Home nursing | 48,960 | 49,581 | (621 | ) | (1.3 | ) | ||||||||||
Total | $ | 187,457 | $ | 166,746 | $ | 20,711 | 12.4 | % |
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Nine Months Ended | ||||||||||||||||
September 30, | Increase/ | |||||||||||||||
2009 | 2008 | Decrease | % | |||||||||||||
Total | $ | 59,597 | $ | 47,198 | $ | 12,399 | 26.3 | % | ||||||||
Percentage of net revenue | 31.8 | % | 28.3 | % |
Nine Months Ended | ||||||||||||||||
September 30, | Increase/ | |||||||||||||||
2009 | 2008 | Decrease | % | |||||||||||||
Total | $ | 31,534 | $ | 32,228 | $ | (694 | ) | (2.2 | )% | |||||||
Percentage of net revenue | 16.8 | % | 19.3 | % |
Nine Months Ended | ||||||||||||||||
September 30, | Increase/ | |||||||||||||||
2009 | 2008 | Decrease | % | |||||||||||||
Total | $ | 68,959 | $ | 63,645 | $ | 5,314 | 8.3 | % | ||||||||
Percentage of net revenue | 36.8 | % | 38.2 | % |
Nine Months Ended | ||||||||||||||||
September 30, | Increase/ | |||||||||||||||
2009 | 2008 | Decrease | % | |||||||||||||
Total | $ | 5,493 | $ | 9,231 | $ | (3,738 | ) | (40.5 | )% | |||||||
Percentage of net revenue | 2.9 | % | 5.5 | % |
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Nine Months Ended | ||||||||||||||||
September 30, | Increase/ | |||||||||||||||
2009 | 2008 | Decrease | % | |||||||||||||
Total | $ | 7,239 | $ | 5,574 | $ | 1,665 | 29.9 | % | ||||||||
Percentage of net revenue | 3.9 | % | 3.3 | % |
Year Ended | ||||||||||||||||
December 31, | Increase/ | |||||||||||||||
2008 | 2007 | Decrease | % | |||||||||||||
Home infusion | $ | 164,693 | $ | 131,356 | $ | 33,337 | 25.4 | % | ||||||||
Home nursing | 66,175 | 62,497 | 3,678 | 5.9 | ||||||||||||
Total | $ | 230,868 | $ | 193,853 | $ | 37,015 | 19.1 | % |
Year Ended | ||||||||||||||||
December 31, | Increase/ | |||||||||||||||
2008 | 2007 | Decrease | % | |||||||||||||
Total | $ | 69,593 | $ | 52,755 | $ | 16,838 | 31.9 | % | ||||||||
Percentage of net revenue | 30.1 | % | 27.2 | % |
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Year Ended | ||||||||||||||||
December 31, | Increase/ | |||||||||||||||
2008 | 2007 | Decrease | % | |||||||||||||
Total | $ | 42,365 | $ | 42,591 | $ | (226 | ) | (0.5 | )% | |||||||
Percentage of net revenue | 18.4 | % | 22.0 | % |
Year Ended | ||||||||||||||||
December 31, | Increase/ | |||||||||||||||
2008 | 2007 | Decrease | % | |||||||||||||
Total | $ | 88,650 | $ | 72,071 | $ | 16,579 | 23.0 | % | ||||||||
Percentage of net revenue | 38.4 | % | 37.2 | % |
Year Ended | ||||||||||||||||
December 31, | Increase/ | |||||||||||||||
2008 | 2007 | Decrease | % | |||||||||||||
Total | $ | 3,580 | $ | 4,379 | $ | (799 | ) | (18.2 | )% | |||||||
Percentage of net revenue | 1.8 | % | 2.3 | % |
Year Ended | ||||||||||||||||
December 31, | Increase/ | |||||||||||||||
2008 | 2007 | Decrease | % | |||||||||||||
Total | $ | 12,114 | $ | 15,324 | $ | (3,210 | ) | (20.9 | )% | |||||||
Percentage of net revenue | 5.2 | % | 7.9 | % |
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Year Ended | ||||||||||||||||
December 31, | Increase/ | |||||||||||||||
2008 | 2007 | Decrease | % | |||||||||||||
Total | $ | 4,979 | $ | 2,328 | $ | 2,651 | 113.9 | % | ||||||||
Percentage of net revenue | 2.2 | % | 1.2 | % |
Year Ended | ||||||||
December 31, 2007 | ||||||||
Amount | % of Total | |||||||
(Dollars in thousands) | ||||||||
Net Revenue: | ||||||||
Home infusion | $ | 131,356 | 67.8 | % | ||||
Home nursing | 62,497 | 32.2 | ||||||
Total | $ | 193,853 | 100.0 | % | ||||
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• | minimum adjusted EBITDA, which requires that CHS’s adjusted EBITDA for the most recently completed four fiscal quarters exceed certain thresholds. CHS’s minimum adjusted EBITDA is tested on a quarterly basis. As of September 30, 2009, CHS’s First Lien Facility required that it maintain adjusted EBITDA of $31.3 million and its Second Lien Term Loan required that it maintain adjusted EBITDA of $27.3 million. | |
• | a maximum total leverage ratio, which requires that CHS’s ratio of consolidated indebtedness to its adjusted EBITDA for the most recently completed four fiscal quarters not exceed certain thresholds. The maximum total leverage ratio is tested on a quarterly basis. As of September 30, 2009, CHS’s First Lien Facility required that this ratio not exceed 3.75:1.00 and its Second Lien Term Loan required that this ratio not exceed 4.00:1.00. | |
• | a fixed charge coverage ratio, which requires that CHS’s ratio of (i) adjusted EBITDA for the most recently completed four fiscal quarters less capital expenditures, income tax expense and dividends paid to it by Critical Homecare Solutions, Inc. to (ii) the sum of cash interest expense and all scheduled debt repayments exceed certain thresholds. The fixed charge coverage ratio is tested on a quarterly basis. As of September 30, 2009, CHS’s First Lien Facility required that this ratio exceed 1.10:1.00 and its Second Lien Term Loan required that this ratio exceed 1.00:1.00. |
Payments Due by Period | ||||||||||||||||||||||||
2009 | ||||||||||||||||||||||||
Total | (3 months) | 2010 | 2011 | 2012 | Thereafter | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Long Term Debt Obligations | $ | 141,902 | $ | 1,445 | $ | 10,917 | $ | 11,556 | $ | 83,984 | $ | 34,000 | ||||||||||||
Interest-Long Term Debt Obligations* | 15,267 | 1,523 | 5,887 | 5,384 | 2,396 | 77 | ||||||||||||||||||
Capital Lease Obligations | 395 | 42 | 140 | 116 | 78 | 19 | ||||||||||||||||||
Operating Lease Obligations | 8,213 | 864 | 3,001 | 2,112 | 1,474 | 762 | ||||||||||||||||||
Interest-Capital Lease Obligations | 29 | 2 | 10 | 9 | 6 | 2 | ||||||||||||||||||
Total | $ | 165,806 | $ | 3,876 | $ | 19,955 | $ | 19,177 | $ | 87,938 | $ | 34,860 | ||||||||||||
* | Computed using interest rates in effect as of September 30, 2009. |
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BioScrip | CHS | |||||||||||||||
Historical | Historical | Preliminary | ||||||||||||||
September 30, | September 30, | Pro Forma | Pro Forma | |||||||||||||
2009 | 2009 | Adjustments | Combined | |||||||||||||
(in thousands, except for per share amounts) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | — | $ | 6,857 | $ | 23,416 | (A) | $ | 30,273 | |||||||
Receivables, net | 147,326 | 42,592 | 189,918 | |||||||||||||
Inventory | 47,833 | 3,935 | 51,768 | |||||||||||||
Prepaid expenses and other current assets | 3,866 | 2,571 | 6,437 | |||||||||||||
Deferred tax assets | 3,662 | 3,662 | ||||||||||||||
Total current assets | 199,025 | 59,617 | 23,416 | 282,058 | ||||||||||||
Property and equipment, net | 15,674 | 7,254 | 22,928 | |||||||||||||
Goodwill | 24,498 | 220,350 | 83,537 | (B) | 328,385 | |||||||||||
Intangible assets | 21,605 | 21,605 | ||||||||||||||
Deferred financing fees | 1,605 | 10,395 | (C) | 12,000 | ||||||||||||
Other assets | 983 | 1,820 | 2,803 | |||||||||||||
Total assets | $ | 240,180 | $ | 312,251 | $ | 117,348 | $ | 669,779 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Line of credit | $ | 39,584 | $ | — | $ | (39,584 | )(A) | $ | — | |||||||
Current portion of long term debt | 7,945 | $ | (5,445 | )(D) | 2,500 | |||||||||||
Current portion of capital lease obligations | 145 | 145 | ||||||||||||||
Accounts payable | 62,909 | 2,905 | 65,814 | |||||||||||||
Claims payable | 4,228 | 4,228 | ||||||||||||||
Income taxes payable | — | |||||||||||||||
Amounts due to plan sponsors | 5,951 | 5,951 | ||||||||||||||
Accrued expenses and other current liabilities | 10,200 | 18,544 | 28,744 | |||||||||||||
Total current liabilities | 122,872 | 29,539 | (45,029 | ) | 107,382 | |||||||||||
Deferred taxes | 1,095 | 7,339 | 8,434 | |||||||||||||
Income taxes payable — long term | 3,512 | 3,512 | ||||||||||||||
Capital lease obligations | 250 | 250 | ||||||||||||||
Long term debt | 133,958 | 188,542 | (E) | 322,500 | ||||||||||||
Total liabilities | 127,479 | 171,086 | 143,513 | 442,078 | ||||||||||||
CHS Preferred stock | — | 25,036 | (25,036 | )(F) | — | |||||||||||
Stockholders’ equity | ||||||||||||||||
Common stock in excess of par value | 4 | 91 | (91 | )(G) | 4 | |||||||||||
Treasury stock, shares at cost | (10,366 | ) | (10,366 | ) | ||||||||||||
Additional paid-in capital | 252,274 | 96,524 | 26,476 | (H) | 375,274 | |||||||||||
Accumulated (deficit) earnings | (129,211 | ) | 19,514 | (27,514 | )(I) | (137,211 | ) | |||||||||
Total stockholders’ equity | 112,701 | 116,129 | (1,129 | ) | 227,701 | |||||||||||
Total liabilities and stockholders’ equity | $ | 240,180 | $ | 312,251 | $ | 117,348 | $ | 669,779 | ||||||||
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BioScrip | CHS | |||||||||||||||
Historical | Historical | |||||||||||||||
Fiscal Year Ended | Fiscal Year Ended | Preliminary | ||||||||||||||
December 31, | December 31, | Pro Forma | Pro Forma | |||||||||||||
2008 | 2008 | Adjustments | Combined | |||||||||||||
(in thousands, except for per share amounts) | ||||||||||||||||
Revenue(1) | $ | 1,401,911 | $ | 230,868 | $ | 1,632,779 | ||||||||||
Cost of revenue | 1,259,741 | 111,958 | 1,371,699 | |||||||||||||
Gross profit | 142,170 | 118,910 | — | 261,080 | ||||||||||||
Selling, general and administrative expenses | 116,904 | 82,409 | 199,313 | |||||||||||||
Bad debt expense | 4,667 | 6,241 | 10,908 | |||||||||||||
Goodwill and intangible impairment charges | 93,882 | — | 93,882 | |||||||||||||
Terminated transaction costs | — | 3,580 | 3,580 | |||||||||||||
Depreciation and amortization | 10,234 | 3,615 | 13,849 | |||||||||||||
(Loss) income from operations | (83,517 | ) | 23,065 | — | (60,452 | ) | ||||||||||
Interest expense, net | 2,711 | 12,119 | 16,198 | (A) | 31,028 | |||||||||||
(Loss) income before income taxes | (86,228 | ) | 10,946 | (16,198 | ) | (91,480 | ) | |||||||||
Tax (benefit) provision | (12,196 | ) | 4,979 | (6,479 | )(B) | (13,696 | ) | |||||||||
Net (loss) income | (74,032 | ) | 5,967 | (9,719 | ) | (77,784 | ) | |||||||||
Cumulative preferred stock dividends | — | (244 | ) | 244 | (C) | — | ||||||||||
Net (loss) income available to common stockholders | $ | (74,032 | ) | $ | 5,723 | $ | (9,475 | ) | $ | (77,784 | ) | |||||
Net (loss) income available to common stockholders per share | ||||||||||||||||
Basic | $ | (1.93 | ) | $ | 0.06 | $ | (1.51 | ) | ||||||||
Diluted | $ | (1.93 | ) | $ | 0.06 | $ | (1.51 | ) | ||||||||
Weighted average common shares outstanding | ||||||||||||||||
Basic | 38,417 | 90,898 | 51,360 | |||||||||||||
Diluted | 38,417 | 96,857 | 51,360 |
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BioScrip | CHS | |||||||||||||||
Historical | Historical | |||||||||||||||
Nine Months Ended | Nine Months Ended | Preliminary | ||||||||||||||
September 30, | September 30, | Pro Forma | Pro Forma | |||||||||||||
2009 | 2009 | Adjustments | Combined | |||||||||||||
(in thousands, except for per share amounts) | ||||||||||||||||
Revenue(1) | $ | 987,974 | $ | 187,457 | $ | 1,175,431 | ||||||||||
Cost of revenue | 872,100 | 91,131 | 963,231 | |||||||||||||
Gross profit | 115,874 | 96,326 | — | 212,200 | ||||||||||||
Selling, general and administrative expenses | 90,739 | 64,274 | 155,013 | |||||||||||||
Bad debt expense | 5,410 | 4,685 | 10,095 | |||||||||||||
Depreciation and amortization | 3,596 | 2,986 | 6,582 | |||||||||||||
Income from operations | 16,129 | 24,381 | — | 40,510 | ||||||||||||
Interest expense, net | 1,471 | 5,492 | 16,308 | (A) | 23,271 | |||||||||||
Income before income taxes | 14,658 | 18,889 | (16,308 | ) | 17,239 | |||||||||||
Tax provision (benefit) | 1,249 | 7,239 | (6,523 | )(B) | 1.965 | |||||||||||
Net income | 13,409 | 11,650 | (9,785 | ) | 15,274 | |||||||||||
Cumulative preferred stock dividends | — | (1,291 | ) | 1,291 | (C) | — | ||||||||||
Net income available to common stockholders | $ | 13,409 | $ | 10,359 | $ | (8,494 | ) | $ | 15,274 | |||||||
Net income available to common stockholders per share | ||||||||||||||||
Basic | $ | 0.35 | $ | 0.11 | $ | 0.30 | ||||||||||
Diluted | $ | 0.34 | $ | 0.10 | $ | 0.29 | ||||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 38,807 | 90,898 | 51,750 | |||||||||||||
Diluted | 39,345 | 104,424 | 52,288 |
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1. | Description of Transaction |
• | repay the net indebtedness of CHS, which is approximately $132 million at December 31, 2009; | |
• | pay cash consideration of $110 million; | |
• | issue 12,655,649 shares of BioScrip common stock of which 2,696,516 shares initially will be held in escrow to fund indemnification payments, if any; and | |
• | issue warrants to acquire 3,400,945 shares of BioScrip common stock, exercisable at $10 per share over a five-year period. |
2. | Basis of Presentation |
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3. | Accounting Policies |
4. | Estimate of Consideration Expected to be Transferred and Purchase Price to be Allocated |
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(In thousands) | ||||
Cash payable as merger consideration(a) | $ | 110,000 | ||
Assumption and refinance of CHS debt(a) | 132,000 | |||
Value of BioScrip common stock issued as merger consideration(b) | 108,000 | |||
Value of BioScrip warrants issued as merger consideration(b) | 15,000 | |||
Estimate of merger consideration to acquire the shares of CHS | $ | 365,000 | ||
(a) | BioScrip has received a financing commitment from Jefferies Finance pursuant to which Jefferies Finance has committed to provide BioScrip with $375 million in debt financing, comprised of $150 million in senior credit facilities and $225 million in other debt facilities. BioScrip expects to fund the cash payments, repay existing indebtedness of CHS and refinance indebtedness of BioScrip, with newly borrowed funds including a $100 million, 5 year term loan and the issuance of $225 million in senior unsecured five and a half year notes. | |
(b) | The estimated value of BioScrip shares issuable as merger consideration is based upon the10-day weighted average of the closing common stock price as of January 22, 2010 of $8.3441 per share. Accordingly, the unaudited pro forma combined financial information assumes that BioScrip will issue 12,655,649 shares and roll over stock options with a combined value of approximately $108 million in connection with the merger. Warrants are valued at $15 million based on 3,400,945 issued, exercisable at $10 per share over a five year period. If the common stock value of BioScrip falls below 62.5% of the weighted average stock value of $8.3441 used to value the common stock for the 10 trading days immediately preceding the scheduled date of closing, or $5.2151 per share, a condition of CHS closing the merger agreement would not be satisfied. |
5. | Estimate of Assets to be Acquired and Liabilities to be Assumed |
(In thousands) | ||||
Book value of CHS net assets acquired as of September 30, 2009: | $ | 141,165 | ||
Debt paid down prior to closing by CHS | 6,857 | |||
Write off of CHS deferred financing costs | (1,605 | ) | ||
Record goodwill adjustment | 83,537 | |||
CHS debt to be repaid at closing | 135,046 | |||
Purchase price allocated | $ | 365,000 | ||
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6. | Adjustments to Unaudited Pro Forma Combined Balance Sheet: |
(In thousands) | ||||
Sources: | ||||
Debt expected to be issued in connection with the merger (See Note 4(a)) | $ | 325,000 | ||
Uses: | ||||
Cash consideration to stockholders of CHS | (106,954 | ) | ||
Assumption and refinance of CHS debt | (135,046 | ) | ||
Repay BioScrip line of credit | (39,584 | ) | ||
Estimated transaction-related expenses | (20,000 | ) | ||
Net adjustment of cash and cash equivalents | $ | 23,416 | ||
(In thousands) | ||||
Eliminate CHS’s historical goodwill | $ | (220,350 | ) | |
Record transaction goodwill | 303,887 | |||
Goodwill adjustment | $ | 83,537 | ||
(In thousands) | ||||
Debt financing fees | $ | 12,000 | ||
Write-off of existing CHS deferred financing costs | (1,605 | ) | ||
Deferred financing fees adjustment | $ | 10,395 | ||
(In thousands) | ||||
Elimination of CHS short-term debt | $ | (7,945 | ) | |
Reclassification of short term portion of newly issued debt | 2,500 | |||
Short term debt adjustment | $ | (5,445 | ) | |
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(In thousands) | ||||
Debt expected to be issued by BioScrip in connection with the merger (See Note 4(a)) | $ | 325,000 | ||
Elimination of existing CHS long term debt | (133,958 | ) | ||
Reclassification of short term portion of newly issued debt | (2,500 | ) | ||
Long term debt adjustment | $ | 188,542 | ||
(In thousands) | ||||
Eliminate CHS existing paid-in capital | $ | (96,524 | ) | |
Issuance of BioScrip common stock | 108,000 | |||
Issuance of BioScrip warrants | 15,000 | |||
Additional paid-in capital adjustment | $ | 26,476 | ||
(In thousands) | ||||
Eliminate CHS retained earnings | $ | (19,514 | ) | |
Impact of transaction closing costs expensed at time of closing | (8,000 | ) | ||
Retained earnings adjustment | $ | (27,514 | ) | |
7. | Adjustments to Unaudited Pro Forma Combined Statements of Earnings: |
Year Ended | Nine Months Ended | |||||||
December 31, 2008 | September 30, 2009 | |||||||
(In thousands) | ||||||||
Estimated interest on new debt | $ | 29,313 | 21,985 | |||||
Amortization of deferred financing costs | 1,715 | 1,286 | ||||||
Eliminate interest cost on BioScrip line of credit | (2,711 | ) | (1,471 | ) | ||||
Eliminate CHS interest on debt | (12,119 | ) | (5,492 | ) | ||||
Total interest adjustments | $ | 16,198 | 16,308 | |||||
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AND MANAGEMENT OF BIOSCRIP
Number of Shares | ||||||||
Name and Address of Beneficial Owner(1) | Beneficially Owned(2)(3) | Percent of Class(3) | ||||||
Heartland Advisors, Inc. | 7,560,765 | (4) | 18.71 | % | ||||
789 North Water Street Milwaukee, WI53202-3508 | ||||||||
Dimensional Fund Advisors LP | 3,059,177 | (5) | 7.57 | % | ||||
1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 | ||||||||
BlackRock, Inc. | 2,286,335 | (6) | 5.66 | % | ||||
40 E. 52nd Street New York, NY 10022 | ||||||||
Essex Investment Management Company, LLC | 2,169,832 | (7) | 5.37 | % | ||||
125 High Street, 29th Floor Boston, MA02110-2702 | ||||||||
Richard H. Friedman | 2,411,944 | (8) | 5.77 | % | ||||
Richard M. Smith | 155,000 | (9) | * | |||||
Barry A. Posner | 384,388 | (10) | * | |||||
Stanley G. Rosenbaum | 378,167 | (11) | * | |||||
Russel J. Corvese | 220,646 | (12) | * | |||||
Charlotte W. Collins | 48,800 | (13) | * | |||||
Louis T. DiFazio | 41,000 | (14) | * | |||||
Myron Z. Holubiak | 66,100 | (15) | * | |||||
David R. Hubers | 181,700 | (16) | * | |||||
Richard L. Robbins | 88,500 | (17) | * | |||||
Stuart A. Samuels | 108,700 | (18) | * | |||||
All Directors and Executive Officers as a group (18 persons) | 4,505,242 | (19) | 10.43 | % |
* | Percentage less than 1% of class. | |
(1) | Except as otherwise indicated, all addresses arec/o BioScrip, Inc., 100 Clearbrook Road, Elmsford, NY 10523. | |
(2) | The inclusion in this table of any shares of BioScrip common stock as beneficially owned does not constitute an admission of beneficial ownership of those shares. Except as otherwise indicated, each person has sole voting power and sole investment power with respect to all such shares beneficially owned by such person. | |
(3) | Shares deemed beneficially owned by virtue of the right of an individual to acquire them within 60 days after February 2, 2010 upon the exercise of an option to purchase shares of BioScrip common stock are treated as outstanding for purposes of determining beneficial ownership and the percentage beneficially owned by such individual. | |
(4) | Based on information contained in Schedule 13G filed with the SEC on October 13, 2009 by Heartland Advisors, Inc., referred to herein as “Heartland.” Heartland advises that it is an investment advisor registered with the SEC. Heartland, by virtue of its investment discretion and voting authority granted by certain clients, which may be revoked at any time, and William J. Nasgovitz, President and principal |
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shareholder of Heartland, share dispositive and voting power with respect to the shares held by Heartland’s clients and managed by Heartland. Heartland and Mr. Nasgovitz each specifically disclaim beneficial ownership of these shares and disclaim the existence of a group. | ||
(5) | Based on information contained in Schedule 13G filed with the SEC on February 9, 2009 by Dimensional Fund Advisors LP, referred to as “Dimensional.” Dimensional advises that it is an investment advisor registered with the SEC, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts, collectively referred to as “Funds.” In its role as investment advisor or manager, Dimensional possesses investment and/or voting power over the securities of BioScrip that are owned by the Funds, and may be deemed to be the beneficial owner of the shares of BioScrip held by the Funds. However, all securities reported in the Schedule 13G are owned by the Funds. Dimensional disclaims beneficial ownership of such securities. All securities reported in this schedule are owned by advisory clients of Dimensional, no one of which, to the knowledge of Dimensional, owns more than 5% of the class. Dimensional disclaims beneficial ownership of all such securities. | |
(6) | Based on information contained in Schedule 13G filed with the SEC on January 29, 2010 by BlackRock, Inc., referred to herein as “BlackRock.” BlackRock advises that it is a parent holding company or control person in accordance withRule 13d-i(b)(l)(ii)(G) of the Exchange Act. | |
(7) | Based on information contained in Schedule 13G filed with the SEC on January 25, 2010 by Essex Investment Management Company, LLC, referred to herein as “Essex.” Essex advises that it is an investment advisor registered with the SEC. | |
(8) | Includes 1,395,865 shares issuable upon exercise of the vested portion of options held by Mr. Friedman. Excludes 225,000 shares subject to the unvested portion of options held by Mr. Friedman. Includes 250,000 shares of BioScrip common stock owned by the Richard H. Friedman Grantor Retained Annuity Trust. Mr. Friedman is a trustee of the trust. | |
(9) | Includes 35,000 shares issuable upon exercise of the vested portion of options held by Mr. Smith. Excludes 70,000 shares subject to the unvested portion of options held by Mr. Smith. | |
(10) | Includes 334,262 shares issuable upon exercise of the vested portion of options held by Mr. Posner. Excludes 133,750 shares subject to the unvested portion of options held by Mr. Posner. | |
(11) | Includes 193,410 shares issuable upon exercise of the vested portion of options held by Mr. Rosenbaum. Excludes 146,874 shares subject to the unvested portion of options held by Mr. Rosenbaum. | |
(12) | Includes 177,808 shares issuable upon exercise of the vested portion of options to purchase BioScrip common stock held by Mr. Corvese. Excludes 112,500 shares subject to the unvested portion of options held by Mr. Corvese. Does not include 239,460 shares of BioScrip common stock held in the Corvese Irrevocable Trust — 1992, of which Mr. Corvese is a trustee. Mr. Corvese disclaims beneficial ownership of such shares of BioScrip common stock. | |
(13) | Includes 35,000 shares issuable upon exercise of the vested portion of options to purchase BioScrip common stock held by Ms. Collins. | |
(14) | Includes 25,000 shares issuable upon exercise of the vested portion of options held by Dr. DiFazio. | |
(15) | Includes 52,600 shares issuable upon exercise of the vested portion of options held by Mr. Holubiak. | |
(16) | Includes 92,200 shares issuable upon exercise of the vested portion of options held by Mr. Hubers. Also includes 16,000 shares of BioScrip common stock held by the David R. Hubers Grantor Retained Annuity Trust; 25,000 shares of BioScrip common stock held by the David R. Hubers Revocable Trust; and 12,940 shares of BioScrip common stock held by the Hubers Grandchildren’s Trust. Mr. Hubers is a trustee of these trusts. | |
(17) | Includes 25,000 shares subject to the vested portion of options held by Mr. Robbins. | |
(18) | Includes 92,200 shares issuable upon exercise of the vested portion of options held by Mr. Samuels. | |
(19) | Includes 2,756,313 shares issuable upon exercise of the vested portion of options. Excludes 1,146,038 shares subject to the unvested portion of options. |
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OF STOCKHOLDER DOCUMENTS
• | Our annual report onForm 10-K for the fiscal year ended December 31, 2008, which we filed with the SEC on March 5, 2009; |
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• | Our 2009 annual meeting proxy statement on Schedule 14A, which we filed with the SEC on March 27, 2009; | |
• | Our quarterly reports onForm 10-Q for the fiscal quarters ended September 31, 2009, March 31, 2009 and June 30, 2009, which we filed with the SEC on November 2, 2009 (as amended on December 2, 2009), May 5, 2009 and August 4, 2009, respectively; and | |
• | Our current reports onForm 8-K, which we filed with the SEC on January 1, 2009, March 4, 2009, July 9, 2009, July 30, 2009, August 18, 2009, August 26, 2009, September 10, 2009, October 30, 2009, December 31, 2009 and January 27, 2010. |
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Page | ||||
Critical Homecare Solutions Holdings, Inc. | ||||
Audited Consolidated Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-27 | ||||
F-28 | ||||
F-29 | ||||
F-30 | ||||
F-31 | ||||
F-32 | ||||
Unaudited Condensed Consolidated Financial Statements | ||||
F-52 | ||||
F-53 | ||||
F-54 | ||||
F-55 | ||||
F-56 | ||||
Specialty Pharma, Inc. | ||||
Audited Consolidated Financial Statements | ||||
F-75 | ||||
F-76 | ||||
F-77 | ||||
F-78 | ||||
F-79 | ||||
F-80 | ||||
New England Home Therapies, Inc. | ||||
Audited Financial Statements | ||||
F-91 | ||||
F-92 | ||||
F-93 | ||||
F-94 | ||||
F-95 | ||||
F-96 | ||||
Deaconess Enterprises, Inc | ||||
Audited Consolidated Financial Statements | ||||
F-103 | ||||
F-104 | ||||
F-105 | ||||
F-106 | ||||
F-107 |
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F-2
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CONSOLIDATED BALANCE SHEETS
As of December 31, 2008 and 2007
2008 | 2007 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 263,840 | $ | 1,679,521 | ||||
Accounts receivable — net of allowance for doubtful accounts of $9,674,715 and $5,167,950 in 2008 and 2007, respectively | 52,071,131 | 45,474,288 | ||||||
Inventories | 4,579,824 | 3,633,628 | ||||||
Deferred tax assets | 4,972,876 | 5,967,608 | ||||||
Prepaids and other current assets | 1,331,989 | 2,318,068 | ||||||
Total current assets | 63,219,660 | 59,073,113 | ||||||
PROPERTY AND EQUIPMENT — Net | 7,282,604 | 6,722,465 | ||||||
GOODWILL | 210,736,927 | 196,792,548 | ||||||
INTANGIBLE ASSETS — Net | 21,859,929 | 21,422,836 | ||||||
DEFERRED FINANCING FEES — Net | 2,088,563 | 2,728,642 | ||||||
OTHER ASSETS | 1,692,701 | 1,530,562 | ||||||
TOTAL | $ | 306,880,384 | $ | 288,270,166 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 3,629,593 | $ | 5,603,924 | ||||
Accrued expenses | 21,086,837 | 22,909,956 | ||||||
Current portion of long-term debt | 5,800,000 | 2,975,000 | ||||||
Current portion of capital lease obligations | 188,963 | 238,459 | ||||||
Total current liabilities | 30,705,393 | 31,727,339 | ||||||
Long-term debt, net of current portion | 145,600,000 | 151,400,000 | ||||||
Long-term capital lease obligations — net of current portion | 231,387 | 180,224 | ||||||
Deferred tax liabilities | 6,878,519 | 8,688,915 | ||||||
Total liabilities | 183,415,299 | 191,996,478 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 11) | ||||||||
Preferred stock, $0.001 par value — 5,000,000 shares authorized; 20,036 and 0 shares issued and outstanding as of December 31, 2008 and 2007, respectively (with a liquidation preference of $20,280,403 as of December 31, 2008) | 20,036,500 | |||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, $0.001 par value — 100,000,000 shares authorized; 90,898,079 issued and outstanding as of December 31, 2008 and 2007, respectively | 90,898 | 90,898 | ||||||
Additional paid-in capital | 95,473,651 | 94,285,521 | ||||||
Retained earnings | 7,864,036 | 1,897,269 | ||||||
Total stockholders’ equity | 103,428,585 | 96,273,688 | ||||||
TOTAL | $ | 306,880,384 | $ | 288,270,166 | ||||
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CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008 | 2007 | |||||||
NET REVENUE | $ | 230,868,353 | $ | 193,853,167 | ||||
COSTS AND EXPENSES: | ||||||||
Cost of goods (excluding depreciation and amortization) | 69,592,953 | 52,754,941 | ||||||
Cost of services provided | 42,364,898 | 42,591,044 | ||||||
Selling, distribution, and administrative expenses | 82,408,769 | 67,505,376 | ||||||
Provision for doubtful accounts | 6,240,975 | 4,566,504 | ||||||
Depreciation and amortization | 3,615,079 | 3,405,507 | ||||||
Terminated transaction costs | 3,580,085 | 4,378,810 | ||||||
Total costs and expenses | 207,802,759 | 175,202,182 | ||||||
OPERATING INCOME | 23,065,594 | 18,650,985 | ||||||
INTEREST AND OTHER FINANCING COSTS | (12,113,501 | ) | (15,324,249 | ) | ||||
OTHER INCOME (EXPENSE) — Net | (6,586 | ) | 613,017 | |||||
INCOME BEFORE INCOME TAXES | 10,945,507 | 3,939,753 | ||||||
PROVISION FOR INCOME TAXES | 4,978,740 | 2,328,217 | ||||||
NET INCOME | 5,966,767 | 1,611,536 | ||||||
CUMULATIVE PREFERRED STOCK DIVIDENDS | (243,903 | ) | ||||||
INCOME AVAILABLE TO COMMON SHAREHOLDERS | $ | 5,722,864 | $ | 1,611,536 | ||||
BASIC EARNINGS PER COMMON SHARE | $ | 0.06 | $ | 0.02 | ||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.06 | $ | 0.02 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||
Basic | 90,898,079 | 86,050,106 | ||||||
Diluted | 96,857,146 | 86,840,355 | ||||||
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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the years ended December 31, 2008 and 2007
Additional | ||||||||||||||||||||||||
Common Stock | Subscription | Paid-in | Retained | |||||||||||||||||||||
Shares | Amount | Receivable | Capital | Earnings | Total | |||||||||||||||||||
BALANCE — December 31, 2006 | 25,350,000 | $ | 25,350 | $ | (175,000 | ) | $ | 25,324,650 | $ | 285,733 | $ | 25,460,733 | ||||||||||||
Issuance of common stock at fair value — January 2007 | 57,500,000 | 57,500 | 57,442,500 | 57,500,000 | ||||||||||||||||||||
Issuance of common stock at fair value June 2007 | 8,048,079 | 8,048 | 10,454,452 | 10,462,500 | ||||||||||||||||||||
Stock subscription receivable | 175,000 | 175,000 | ||||||||||||||||||||||
Compensation expense related to issuance of stock options | 1,063,919 | 1,063,919 | ||||||||||||||||||||||
Net income | 1,611,536 | 1,611,536 | ||||||||||||||||||||||
BALANCE — December 31, 2007 | 90,898,079 | 90,898 | 94,285,521 | 1,897,269 | 96,273,688 | |||||||||||||||||||
Compensation expense related to issuance of stock options | 1,188,130 | 1,188,130 | ||||||||||||||||||||||
Net income | 5,966,767 | 5,966,767 | ||||||||||||||||||||||
BALANCE — December 31, 2008 | 90,898,079 | $ | 90,898 | $ | $ | 95,473,651 | $ | 7,864,036 | $ | 103,428,585 | ||||||||||||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2008 and 2007
2008 | 2007 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 5,966,767 | $ | 1,611,536 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Provision for doubtful accounts | 6,240,975 | 4,566,504 | ||||||
Depreciation and amortization | 3,615,079 | 3,405,507 | ||||||
Write-off of stock issuance costs | 83,653 | 4,378,810 | ||||||
Amortization and write-off of deferred financing fees | 766,672 | 1,511,334 | ||||||
Write-off of preacquisition costs | 417,175 | |||||||
Provision for deferred taxes | (287,624 | ) | (179,485 | ) | ||||
Loss (gain) on fixed asset dispositions | 65,329 | (267,689 | ) | |||||
Compensation expense related to issuance of stock options | 1,188,130 | 1,063,919 | ||||||
Change in operating assets and liabilities — net of effects of acquisitions: | ||||||||
Accounts receivable | (11,000,866 | ) | (15,389,605 | ) | ||||
Inventories | (743,558 | ) | 551,874 | |||||
Prepaids and other current assets | 1,105,566 | (1,414,337 | ) | |||||
Other assets | (250,212 | ) | (5,718,463 | ) | ||||
Accounts payable and accrued expenses | (5,358,192 | ) | 4,470,186 | |||||
Net cash provided by (used in) operating activities | 1,808,894 | (1,409,909 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments for businesses acquisitions — net of cash acquired | (15,627,218 | ) | (176,858,426 | ) | ||||
Repayment of amounts due to sellers | (481,963 | ) | (11,394,577 | ) | ||||
Cash paid for preacquisition costs | (404,212 | ) | (15,416 | ) | ||||
Cash paid for property and equipment | (3,667,653 | ) | (3,128,048 | ) | ||||
Proceeds from disposition of fixed assets | 300,959 | 270,727 | ||||||
Net cash used in investing activities | (19,880,087 | ) | (191,125,740 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from borrowings | 6,750,000 | 165,500,000 | ||||||
Repayment of long-term debt and capital lease obligations | (9,999,573 | ) | (36,862,362 | ) | ||||
Payment of deferred financing fees | (131,415 | ) | (3,407,197 | ) | ||||
Proceeds from issuance of preferred stock | 20,036,500 | |||||||
Proceeds from issuance of common stock | 67,962,500 | |||||||
Proceeds from stock subscription | 175,000 | |||||||
Net cash provided by financing activities | 16,655,512 | 193,367,941 | ||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (1,415,681 | ) | 832,292 | |||||
CASH AND CASH EQUIVALENTS — Beginning of period | 1,679,521 | 847,229 | ||||||
CASH AND CASH EQUIVALENTS — End of period | $ | 263,840 | $ | 1,679,521 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 11,714,245 | $ | 12,789,009 | ||||
Income taxes | $ | 5,368,153 | $ | 3,850,581 | ||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS: | ||||||||
Capital lease obligations incurred to acquire property and equipment | $ | 276,240 | $ | — | ||||
F-6
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1. | OVERVIEW, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES |
F-7
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F-8
Table of Contents
Useful Life | ||
Medical equipment | 13 months to 5 years | |
Leasehold improvements | Base term of lease or useful life, whichever is shorter | |
Equipment, vehicles, and other assets | 3 to 5 years | |
Building | 20 years |
F-9
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F-10
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F-11
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F-12
Table of Contents
2. | ACQUISITIONS |
F-13
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F-14
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NHI | OCL | WC | EGP | IPM and IPB | AHC | ISI | DEI | |||||||||||||||||||||||||
Cash | $ | 59,663 | $ | $ | 75,475 | $ | 66,631 | $ | 736,875 | $ | 860,354 | $ | 110,693 | $ | 10,103,801 | |||||||||||||||||
Accounts receivable | 201,401 | 1,227,474 | 532,805 | 491,927 | 395,440 | 748,069 | 1,043,206 | 22,118,045 | ||||||||||||||||||||||||
Inventories | 21,428 | 155,142 | 181,210 | 222,533 | 60,730 | 148,480 | 261,158 | 1,746,228 | ||||||||||||||||||||||||
Deferred income taxes | 67,611 | 118,337 | 165,318 | 271,385 | 252,074 | 3,828,053 | ||||||||||||||||||||||||||
Other assets | 1,554 | 7,193 | 500 | 5,126 | 12,282 | 6,930 | 782,469 | |||||||||||||||||||||||||
Property and equipment | 6,331 | 93,004 | 61,947 | 78,029 | 24,696 | 140,122 | 130,373 | 2,427,296 | ||||||||||||||||||||||||
Intangible assets | 213,600 | 628,500 | 26,500 | 55,000 | 44,000 | 785,042 | 170,600 | 14,715,000 | ||||||||||||||||||||||||
Goodwill | 3,977,422 | 4,551,592 | 3,518,576 | 5,528,598 | 10,857,071 | 7,168,780 | 7,230,162 | 132,117,444 | ||||||||||||||||||||||||
Total identifiable assets | 4,549,010 | 6,774,049 | 4,569,024 | 6,443,218 | 12,123,938 | 10,134,514 | 9,205,196 | 187,838,336 | ||||||||||||||||||||||||
Accounts payable and accrued expenses | 256,277 | 292,464 | 724,359 | 521,833 | 350,106 | 537,376 | 738,803 | 14,465,105 | ||||||||||||||||||||||||
Long-term debt and capital lease obligations | 125,000 | |||||||||||||||||||||||||||||||
Deferred income taxes | 15,013 | 30,024 | 7,002,412 | |||||||||||||||||||||||||||||
Total identifiable net assets | 4,292,733 | 6,481,585 | 3,844,665 | 5,906,372 | 11,743,808 | 9,597,138 | 8,466,393 | 166,245,819 | ||||||||||||||||||||||||
Amounts due to sellers for cash | 59,663 | 75,475 | 66,631 | 736,875 | 860,354 | 110,693 | 10,103,801 | |||||||||||||||||||||||||
Purchase price | $ | 4,233,070 | $ | 6,481,585 | $ | 3,769,190 | $ | 5,839,741 | $ | 11,006,933 | $ | 8,736,784 | $ | 8,355,700 | $ | 156,142,018 | ||||||||||||||||
3. | PROPERTY AND EQUIPMENT — NET |
2008 | 2007 | |||||||
Medical equipment | $ | 7,652,429 | $ | 4,939,395 | ||||
Leasehold improvements | 970,740 | 607,460 | ||||||
Equipment, vehicles, and other assets | 4,925,620 | 3,978,400 | ||||||
Building | 353,750 | |||||||
Total property and equipment — gross | 13,548,789 | 9,879,005 | ||||||
Less accumulated depreciation and amortization | (6,266,185 | ) | (3,156,540 | ) | ||||
Property and equipment — net | $ | 7,282,604 | $ | 6,722,465 | ||||
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2008 | 2007 | |||||||
Medical equipment | $ | 369,451 | $ | 478,520 | ||||
Equipment, vehicles, and other assets | 555,548 | 279,308 | ||||||
Total property and equipment — gross | 924,999 | 757,828 | ||||||
Less accumulated depreciation and amortization | (394,395 | ) | (269,196 | ) | ||||
Property and equipment — net | $ | 530,604 | $ | 488,632 | ||||
4. | GOODWILL AND INTANGIBLE ASSETS |
Balance — December 31, 2007 | $ | 196,792,548 | ||
Goodwill acquired | 13,944,379 | |||
Balance — December 31, 2008 | $ | 210,736,927 | ||
2008 | 2007 | |||||||
Trademarks — nonamortizable | $ | 15,329,200 | $ | 15,139,200 | ||||
Certificates of need — nonamortizable | 5,486,000 | 4,900,000 | ||||||
Non-compete agreements — amortizable | 644,442 | 560,842 | ||||||
Trademarks — amortizable | 1,220,000 | 1,220,000 | ||||||
Other intangibles — amortizable | 57,363 | 43,541 | ||||||
Accumulated amortization: | ||||||||
Noncompete agreements | (294,565 | ) | (147,959 | ) | ||||
Trademarks | (550,000 | ) | (270,000 | ) | ||||
Other intangibles | (32,511 | ) | (22,788 | ) | ||||
Intangibleassets-net | $ | 21,859,929 | $ | 21,422,836 | ||||
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2009 | $ | 382,205 | ||
2010 | 330,233 | |||
2011 | 292,216 | |||
2012 | 30,685 | |||
2013 | 9,389 | |||
$ | 1,044,728 | |||
5. | ACCRUED EXPENSES |
2008 | 2007 | |||||||
Accrued accounting and legal fees | $ | 143,042 | $ | 304,442 | ||||
Accrued payroll expenses | 7,279,828 | 6,987,565 | ||||||
Deferred revenue | 3,088,033 | 3,051,950 | ||||||
Accrued refunds payable | 3,636,231 | 3,744,999 | ||||||
Amounts due to sellers | 296,757 | 608,403 | ||||||
Other accrued expenses | 4,916,020 | 5,310,917 | ||||||
Accrued workers’ compensation | 1,234,541 | 1,119,762 | ||||||
Accrued benefits | 303,381 | 1,221,642 | ||||||
Accrued interest | 189,004 | 560,276 | ||||||
Accrued expenses | $ | 21,086,837 | $ | 22,909,956 | ||||
6. | LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS |
2008 | 2007 | |||||||
First Lien Facilities and Second Lien Facility | $ | 144,400,000 | $ | 147,300,000 | ||||
Revolving credit facility | 7,000,000 | 7,000,000 | ||||||
Capital lease obligations | 420,350 | 418,683 | ||||||
Other | 75,000 | |||||||
151,820,350 | 154,793,683 | |||||||
Less — obligations maturing within one year | 5,988,963 | 3,213,459 | ||||||
Long-term debt — net of current portion | $ | 145,831,387 | $ | 151,580,224 | ||||
F-17
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F-18
Table of Contents
2009 | $ | 5,988,963 | ||
2010 | 8,796,388 | |||
2011 | 11,677,272 | |||
2012 | 91,340,459 | |||
2013 | 34,017,268 | |||
$ | 151,820,350 | |||
F-19
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7. | EARNINGS PER COMMON SHARE |
Year Ended | ||||||||
December 31, | ||||||||
2008 | 2007 | |||||||
Basic earnings per share computation: | ||||||||
Numerator — income available to common shareholders | $ | 5,722,864 | $ | 1,611,536 | ||||
Denominator — weighted-average number of common shares outstanding | 90,898,079 | 86,050,106 | ||||||
Basic earnings per common share | $ | 0.06 | $ | 0.02 | ||||
Diluted earnings per share computation: | ||||||||
Numerator — income available to common shareholders | $ | 5,722,864 | $ | 1,611,536 | ||||
Cumulative preferred stock dividends | 243,903 | |||||||
Total income available to common shareholders — diluted basis | $ | 5,966,767 | $ | 1,611,536 | ||||
Denominator: | ||||||||
Weighted-average number of common shares outstanding | 90,898,079 | 86,050,106 | ||||||
Weighted-average additional shares assuming exercise of stock options and conversion of preferred stock | 5,959,067 | 790,249 | ||||||
Total weighted average common shares outstanding-diluted basis | 96,857,146 | 86,840,355 | ||||||
Diluted earnings per common share | $ | 0.06 | $ | 0.02 | ||||
8. | EQUITY |
F-20
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Liquidation | Dividend | |||||||||||||||||||||||
Date of Issue | Issue | Amount | Shares | Preference | Rate | Redeemable | Exchangeable | |||||||||||||||||
April 22, 2008 | Series A | $ | 4,000,000 | 4,000 | $ | 1,000 | 4 | % (A) | At any time with the consent of over 75% of the preferred share owners | At any time into share of Common Stock | ||||||||||||||
September 22, 2008 | Series A | $ | 6,000,000 | 6,000 | $ | 1,000 | 4 | % (A) | At any time with the consent of over 75% of the preferred share owners | At any time into share of Common Stock | ||||||||||||||
September 23, 2008 | Series A | $ | 36,000 | 36 | $ | 1,000 | 4 | % (A) | At any time with the consent of over 75% of the preferred share owners | At any time into share of Common Stock | ||||||||||||||
December 19, 2008 | Series A | $ | 10,000,000 | 10,000 | $ | 1,000 | 4 | % (A) | At any time with the consent of over 75% of the preferred share owners | At any time into share of Common Stock |
(A) | The dividend rate is 4% per year during the six-month period following the issuance date and 11% per year thereafter. The dividends, which accrue on the liquidation preference, are payable when, as and if declared by the Company’s board of directors. |
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Year Ended | ||||
December 31, | ||||
2007 | ||||
Risk-free interest rate | 4.70 | % | ||
Expected term | 6.25 | |||
Expected volatility | 44.65 | % | ||
Dividend yield | — |
Weighted- | ||||||||||||
Weighted- | Average Grant | |||||||||||
Average | Date Fair | |||||||||||
Options | Exercise Price | Value | ||||||||||
Outstanding — December 31, 2007 | 8,931,000 | $ | 1.05 | $ | 0.55 | |||||||
Grants | — | — | — | |||||||||
Forfeitures | (151,000 | ) | 1.05 | 0.55 | ||||||||
Outstanding — December 31, 2008 | 8,780,000 | $ | 1.05 | $ | 0.55 | |||||||
Vested and exercisable — December 31, 2008 | 2,893,125 | $ | 1.04 | $ | 0.55 | |||||||
F-22
Table of Contents
9. | INCOME TAXES |
2008 | 2007 | |||||||
Current: | ||||||||
Federal | $ | 2,785,685 | $ | 1,193,080 | ||||
State and local | 2,480,679 | 1,314,622 | ||||||
5,266,364 | 2,507,702 | |||||||
Deferred: | ||||||||
Federal | (219,438 | ) | (220,841 | ) | ||||
State and local | (68,186 | ) | 41,356 | |||||
(287,624 | ) | (179,485 | ) | |||||
Income tax provision | $ | 4,978,740 | $ | 2,328,217 | ||||
2008 | 2007 | |||||||
Deferred tax assets: | ||||||||
Inventory | $ | 154,535 | $ | 228,587 | ||||
Loss carryforward | 2,484,894 | 1,597,416 | ||||||
Accrued liabilities | 2,776,431 | 2,480,412 | ||||||
Stock options | 1,003,513 | |||||||
Transaction costs | 1,320,224 | 1,523,591 | ||||||
Accounts receivable | 4,473,045 | 3,884,734 | ||||||
Deferred tax assets before valuation allowance | 12,212,642 | 9,714,740 | ||||||
Valuation allowance | (2,258,094 | ) | (1,439,592 | ) | ||||
Net deferred tax assets | 9,954,548 | 8,275,148 | ||||||
Deferred tax liabilities: | ||||||||
Prepaid expense | 111,748 | 162,602 | ||||||
Deferred revenue | 950,400 | 621,893 | ||||||
Property and equipment | 261,699 | (94,451 | ) | |||||
Intangibles | 10,536,344 | 9,561,541 | ||||||
Other | 744,870 | |||||||
Deferred tax liabilities | 11,860,191 | 10,996,455 | ||||||
Net deferred tax liabilities | $ | 1,905,643 | $ | 2,721,307 | ||||
2008 | 2007 | |||||||
Federal tax at statutory rate of 34% | $ | 3,721,472 | $ | 1,339,515 | ||||
Nondeductible meals and entertainment | 96,853 | 79,696 | ||||||
Other adjustments | 77,017 | 158,058 | ||||||
State tax provision — net of federal benefit | 1,083,398 | 750,948 | ||||||
Income tax provision | $ | 4,978,740 | $ | 2,328,217 | ||||
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Balance — December 31, 2007 | $ | 100,000 | ||
Additions and reductions based on tax positions related to the current year | ||||
Additions and reductions for tax positions of prior years | 374,082 | |||
Settlements with taxing authorities | ||||
Expiration of the statute of limitations for the assessment of taxes | ||||
Balance — December 31, 2008 | $ | 474,082 | ||
10. | LEASE COMMITMENTS |
Capital | Operating | |||||||
Leases | Leases | |||||||
2009 | $ | 208,335 | $ | 3,047,546 | ||||
2010 | 107,292 | 2,370,910 | ||||||
2011 | 82,218 | 1,629,104 | ||||||
2012 | 42,283 | 1,299,635 | ||||||
2013 | 17,651 | 690,081 | ||||||
2014 and thereafter | 17,715 | |||||||
Total minimum lease payments | 457,779 | $ | 9,054,991 | |||||
Less amounts representing interest | 37,429 | |||||||
Present value of net minimum payments under capital leases | 420,350 | |||||||
Less current portion | 188,963 | |||||||
$ | 231,387 | |||||||
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11. | COMMITMENTS AND CONTINGENCIES |
12. | SEGMENT INFORMATION |
As of and for the Year Ended December 31, 2008 | Home Infusion | Nursing | Corporate | Consolidated | ||||||||||||
Net revenue | $ | 164,693,020 | $ | 66,175,333 | $ | — | $ | 230,868,353 | ||||||||
Operating income | 25,291,328 | 11,396,440 | (13,622,174 | ) | 23,065,594 | |||||||||||
Reconciliation to net income: | ||||||||||||||||
Interest and other financing costs | (12,113,501 | ) | ||||||||||||||
Other income (expense) — Net | (6,586 | ) | ||||||||||||||
Provision for income taxes | (4,978,740 | ) | ||||||||||||||
Net income | 5,966,767 | |||||||||||||||
Total assets | $ | 221,258,860 | $ | 74,493,959 | $ | 11,127,565 | $ | 306,880,384 | ||||||||
Goodwill | $ | 157,468,449 | $ | 53,268,478 | $ | — | $ | 210,736,927 | ||||||||
Purchases of property and equipment | $ | 3,533,629 | $ | 164,114 | $ | 246,150 | $ | 3,943,893 | ||||||||
As of and for the Year Ended December 31, 2007 | Home Infusion | Nursing | Corporate | Consolidated | ||||||||||||
Net revenue | $ | 131,356,459 | $ | 62,496,708 | $ | — | $ | 193,853,167 | ||||||||
Operating income | 21,751,759 | 12,047,544 | (15,148,318 | ) | 18,650,985 | |||||||||||
Reconciliation to net income: | ||||||||||||||||
Interest and other financing costs | (15,324,249 | ) | ||||||||||||||
Other income (expense) — Net | 613,017 | |||||||||||||||
Provision for income taxes | (2,328,217 | ) | ||||||||||||||
Net income | 1,611,536 | |||||||||||||||
Total assets | $ | 199,435,620 | $ | 75,063,733 | $ | 13,770,813 | $ | 288,270,166 | ||||||||
Goodwill | $ | 143,348,615 | $ | 53,443,933 | $ | — | $ | 196,792,548 | ||||||||
Purchases of property and equipment | $ | 1,991,941 | $ | 662,857 | $ | 473,250 | $ | 3,128,048 | ||||||||
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Table of Contents
13. | RELATED-PARTY TRANSACTIONS |
F-26
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F-27
Table of Contents
CONSOLIDATED BALANCE SHEETS
As of December 31, 2007 and 2006
2007 | 2006 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 1,679,521 | $ | 847,229 | ||||
Accounts receivable — net of allowance for doubtful accounts of $5,167,950 and $601,446 in 2007 and 2006, respectively | 45,474,288 | 9,692,246 | ||||||
Inventories | 3,633,628 | 1,746,373 | ||||||
Deferred tax assets | 5,967,608 | 1,770,822 | ||||||
Prepaids and other current assets | 2,318,068 | 193,614 | ||||||
Total current assets | 59,073,113 | 14,250,284 | ||||||
PROPERTY AND EQUIPMENT — Net | 6,722,465 | 3,803,291 | ||||||
GOODWILL | 196,792,548 | 35,402,999 | ||||||
INTANGIBLE ASSETS — Net | 21,422,836 | 6,026,932 | ||||||
DEFERRED FINANCING FEES — Net | 2,728,642 | 832,779 | ||||||
PREACQUISITION COSTS | — | 1,084,587 | ||||||
OTHER ASSETS | 1,530,562 | 111,197 | ||||||
TOTAL | $ | 288,270,166 | $ | 61,512,069 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 5,603,924 | $ | 3,318,389 | ||||
Accrued expenses | 22,909,956 | 4,084,263 | ||||||
Current portion of long-term debt | 2,975,000 | 781,250 | ||||||
Current portion of capital lease obligations | 238,459 | 259,462 | ||||||
Total current liabilities | 31,727,339 | 8,443,364 | ||||||
Long-term debt, net of current portion | 151,400,000 | 24,562,500 | ||||||
Long-term capital lease obligations, net of current portion | 180,224 | 418,647 | ||||||
Deferred tax liabilities | 8,688,915 | 2,626,825 | ||||||
Total liabilities | 191,996,478 | 36,051,336 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 12) | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Preferred stock, $0.001 par value — 5,000,000 shares authorized; 0 issued and outstanding at December 31, 2007 and 2006, respectively | — | — | ||||||
Common stock, $0.001 par value — 100,000,000 shares authorized; 90,898,079 and 25,350,000 issued and outstanding at December 31, 2007 and 2006, respectively | 90,898 | 25,350 | ||||||
Subscription receivable | — | (175,000 | ) | |||||
Additional paid-in capital | 94,285,521 | 25,324,650 | ||||||
Retained earnings | 1,897,269 | 285,733 | ||||||
Total stockholders’ equity | 96,273,688 | 25,460,733 | ||||||
TOTAL | $ | 288,270,166 | $ | 61,512,069 | ||||
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CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 2007, and for the period from September 1, 2006
(date of inception) to December 31, 2006
Period from | ||||||||
September 1, | ||||||||
2006 to | ||||||||
December 31, | ||||||||
2007 | 2006 | |||||||
NET REVENUE | $ | 193,853,167 | $ | 16,897,004 | ||||
COSTS AND EXPENSES: | ||||||||
Cost of goods (excluding depreciation and amortization) | 52,754,941 | 7,471,712 | ||||||
Cost of services provided | 42,591,044 | 1,679,214 | ||||||
Selling, distribution, and administrative expenses | 67,505,376 | 5,507,193 | ||||||
Provision for doubtful accounts | 4,566,504 | 601,446 | ||||||
Depreciation and amortization | 3,405,507 | 416,405 | ||||||
Write-off of stock issuance costs | 4,378,810 | — | ||||||
Total costs and expenses | 175,202,182 | 15,675,970 | ||||||
OPERATING INCOME | 18,650,985 | 1,221,034 | ||||||
INTEREST AND OTHER FINANCING COSTS | (15,324,249 | ) | (755,507 | ) | ||||
OTHER (EXPENSE) INCOME — Net | 613,017 | (1,316 | ) | |||||
INCOME BEFORE INCOME TAXES | 3,939,753 | 464,211 | ||||||
PROVISION FOR INCOME TAXES | 2,328,217 | 178,478 | ||||||
NET INCOME | $ | 1,611,536 | $ | 285,733 | ||||
BASIC EARNINGS PER SHARE | $ | 0.02 | $ | 0.01 | ||||
DILUTED EARNINGS PER SHARE | $ | 0.02 | $ | 0.01 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||
Basic | 86,050,106 | 25,350,000 | ||||||
Diluted | 86,840,355 | 25,350,000 | ||||||
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the year ended December 31, 2007, and for the period from September 1, 2006
(date of inception) to December 31, 2006
Additional | ||||||||||||||||||||||||
Common Stock | Subscription | Paid-in | Retained | |||||||||||||||||||||
Shares | Amount | Receivable | Capital | Earnings | Total | |||||||||||||||||||
BALANCE — September 1, 2006 | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Issuance of common stock | 25,350,000 | 25,350 | (175,000 | ) | 25,324,650 | — | 25,175,000 | |||||||||||||||||
Net income | — | — | — | — | 285,733 | 285,733 | ||||||||||||||||||
BALANCE — December 31, 2006 | 25,350,000 | 25,350 | (175,000 | ) | 25,324,650 | 285,733 | 25,460,733 | |||||||||||||||||
Issuance of common stock at fair value — January, 2007 | 57,500,000 | 57,500 | — | 57,442,500 | — | 57,500,000 | ||||||||||||||||||
Issuance of common stock at fair value — June, 2007 | 8,048,079 | 8,048 | — | 10,454,452 | — | 10,462,500 | ||||||||||||||||||
Stock subscription receivable | — | — | 175,000 | — | — | 175,000 | ||||||||||||||||||
Compensation expense related to issuance of stock options | — | — | — | 1,063,919 | — | 1,063,919 | ||||||||||||||||||
Net income | — | — | — | — | 1,611,536 | 1,611,536 | ||||||||||||||||||
BALANCE — December 31, 2007 | 90,898,079 | $ | 90,898 | $ | — | $ | 94,285,521 | $ | 1,897,269 | $ | 96,273,688 | |||||||||||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31, 2007, and for the period from September 1, 2006
(date of inception) to December 31, 2006
Period from | ||||||||
September 1, | ||||||||
2006 to | ||||||||
December 31, | ||||||||
2007 | 2006 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 1,611,536 | $ | 285,733 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Provision for doubtful accounts | 4,566,504 | 601,446 | ||||||
Depreciation and amortization | 3,405,507 | 475,215 | ||||||
Write-off of stock issuance costs | 4,378,810 | — | ||||||
Write-off and amortization of deferred financing fees | 1,511,334 | — | ||||||
Provision for deferred taxes | (179,485 | ) | 178,478 | |||||
Compensation expense related to issuance of stock options | 1,063,919 | — | ||||||
Change in operating assets and liabilities — net of effects of acquisitions: | ||||||||
Accounts receivable | (15,389,605 | ) | (1,644,502 | ) | ||||
Inventories | 551,874 | (349,228 | ) | |||||
Prepaids and other current assets | (1,414,337 | ) | 144,055 | |||||
Other assets | (5,718,463 | ) | — | |||||
Accounts payable and accrued expenses | 4,470,186 | 794,575 | ||||||
Net cash provided by (used in) operating activities | (1,142,220 | ) | 485,772 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Cash paid for acquisitions — net of cash acquired | (176,858,426 | ) | (48,053,419 | ) | ||||
Repayment of amounts due to sellers | (11,394,577 | ) | — | |||||
Cash paid for preacquisition costs | (15,416 | ) | (230,107 | ) | ||||
Cash paid for property and equipment | (3,125,010 | ) | (1,020,423 | ) | ||||
Net cash used in investing activities | (191,393,429 | ) | (49,303,949 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common stock | 67,962,500 | 25,175,000 | ||||||
Proceeds from stock subscription | 175,000 | — | ||||||
Repayment of long-term debt and capital lease obligations | (36,862,362 | ) | (254,594 | ) | ||||
Proceeds from borrowings | 165,500,000 | 25,636,491 | ||||||
Payment of deferred financing fees | (3,407,197 | ) | (891,491 | ) | ||||
Net cash provided by financing activities | 193,367,941 | 49,665,406 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 832,292 | 847,229 | ||||||
CASH AND CASH EQUIVALENTS — Beginning of period | 847,229 | — | ||||||
CASH AND CASH EQUIVALENTS — End of period | $ | 1,679,521 | $ | 847,229 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 12,789,009 | $ | 645,717 | ||||
Income taxes | $ | 3,850,581 | $ | — | ||||
NONCASH INVESTING AND FINANCING ACTIVITIES | — | |||||||
Assets purchased under capital lease | $ | — | $ | 65,215 | ||||
F-31
Table of Contents
1. | OVERVIEW, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
F-32
Table of Contents
Useful Life | ||
Medical equipment | 13 months to 5 years | |
Leasehold improvements | Base term of lease or useful life, whichever is shorter | |
Equipment, vehicles, and other assets | 3 to 5 years | |
Building | 20 years |
F-33
Table of Contents
F-34
Table of Contents
F-35
Table of Contents
F-36
Table of Contents
F-37
Table of Contents
2. | ACQUISITIONS |
F-38
Table of Contents
EGP | IPM & IPB | AHC | ISI | DEI | ||||||||||||||||
Cash | $ | 66,631 | $ | 736,875 | $ | 860,354 | $ | 110,693 | $ | 10,103,801 | ||||||||||
Accounts receivable | 494,412 | 555,317 | 748,069 | 1,043,206 | 22,118,045 | |||||||||||||||
Inventories | 222,533 | 60,730 | 148,480 | 261,158 | 1,746,228 | |||||||||||||||
Deferred income taxes | — | — | 271,385 | 251,236 | 3,828,053 | |||||||||||||||
Other assets | 10,635 | 5,125 | 12,282 | 6,930 | 782,469 | |||||||||||||||
Property and equipment | 78,029 | 24,696 | 140,122 | 130,373 | 2,427,296 | |||||||||||||||
Intangible assets | 55,000 | 44,000 | 785,042 | 170,600 | 14,715,000 | |||||||||||||||
Goodwill | 5,484,176 | 10,335,387 | 6,013,349 | 6,879,121 | 132,293,232 | |||||||||||||||
Total identifiable assets | 6,411,416 | 11,762,130 | 8,979,083 | 8,853,317 | 188,014,124 | |||||||||||||||
Accounts payable and accrued expenses | 520,433 | 179,264 | 530,795 | 675,358 | 14,465,105 | |||||||||||||||
Amounts due sellers | — | 798,876 | 860,354 | 110,693 | 10,248,000 | |||||||||||||||
Deferred income taxes | 15,012 | 30,024 | — | — | 7,178,200 | |||||||||||||||
Long-term debt and capital lease obligations | — | — | — | — | 125,000 | |||||||||||||||
Purchase price | $ | 5,875,971 | $ | 10,753,966 | $ | 7,587,934 | $ | 8,067,266 | $ | 155,997,819 | ||||||||||
F-39
Table of Contents
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2007 | 2006 | |||||||
(Unaudited) | (Unaudited) | |||||||
(In thousands except per share amounts) | ||||||||
Revenue | $ | 200,932 | $ | 181,675 | ||||
Operating income | $ | 20,520 | $ | 20,673 | ||||
Net income | $ | 2,418 | $ | 4,073 | ||||
Basic and diluted earnings per share | $ | 0.03 | $ | 0.05 | ||||
SPI | NEHT | |||||||
Cash | $ | 473,492 | $ | 337,660 | ||||
Accounts receivable | 4,627,142 | 4,059,277 | ||||||
Inventories | 646,380 | 750,766 | ||||||
Other assets | 1,334,106 | 964,076 | ||||||
Property and equipment | 1,291,983 | 1,803,236 | ||||||
Intangible assets | 3,502,000 | 2,562,000 | ||||||
Goodwill | 24,482,501 | 11,304,782 | ||||||
Total identifiable assets | 36,357,604 | 21,781,797 | ||||||
Accounts payable and accrued expenses | 3,775,915 | 2,385,390 | ||||||
Deferred income taxes | 1,502,114 | 548,898 | ||||||
Long-term debt and capital lease obligations | 202,785 | 371,963 | ||||||
Purchase price | $ | 30,876,790 | $ | 18,475,546 | ||||
F-40
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3. | PROPERTY AND EQUIPMENT |
2007 | 2006 | |||||||
Medical equipment | $ | 4,515,596 | $ | 3,194,330 | ||||
Leasehold improvements | 478,957 | 114,642 | ||||||
Equipment, vehicles, and other assets | 4,530,702 | 831,040 | ||||||
Building | 353,750 | — | ||||||
Total property and equipment — gross | 9,879,005 | 4,140,012 | ||||||
Less accumulated depreciation and amortization | (3,156,540 | ) | (336,721 | ) | ||||
Property and equipment — net | $ | 6,722,465 | $ | 3,803,291 | ||||
2007 | 2006 | |||||||
Medical equipment | $ | 478,520 | $ | 442,843 | ||||
Equipment, vehicles, and other assets | 279,308 | 266,363 | ||||||
Total property and equipment — gross | 757,828 | 709,206 | ||||||
Less accumulated depreciation and amortization | (269,196 | ) | (54,934 | ) | ||||
Property and equipment — net | $ | 488,632 | $ | 654,272 | ||||
4. | GOODWILL AND INTANGIBLE ASSETS |
Balance — December 31, 2006 | $ | 35,402,999 | ||
Acquisitions | 161,005,265 | |||
Additional consideration paid for NEHT and SPI | 384,284 | |||
Balance — December 31, 2007 | $ | 196,792,548 | ||
F-41
Table of Contents
2007 | 2006 | |||||||
Trademarks — nonamortizable | $ | 15,139,200 | $ | 5,800,000 | ||||
Certificates of need — nonamortizable | 4,900,000 | — | ||||||
Noncompete agreements — amortizable | 560,842 | 260,000 | ||||||
Trademarks — amortizable | 1,220,000 | — | ||||||
Other intangibles — amortizable | 43,541 | 5,771 | ||||||
Accumulated amortization: | ||||||||
Noncompete agreements | (147,959 | ) | (37,740 | ) | ||||
Trademarks | (270,000 | ) | — | |||||
Other intangibles | (22,788 | ) | (1,099 | ) | ||||
Intangibleassets-net | $ | 21,422,836 | $ | 6,026,932 | ||||
2008 | $ | 425,759 | ||
2009 | 356,881 | |||
2010 | 311,325 | |||
2011 | 274,143 | |||
2012 | 15,528 | |||
$ | 1,383,636 | |||
5. | PREACQUISITION COSTS |
F-42
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6. | ACCRUED EXPENSES |
2007 | 2006 | |||||||
Accrued accounting and legal fees | $ | 304,442 | $ | 819,885 | ||||
Accrued payroll expenses | 6,987,565 | 1,146,181 | ||||||
Deferred revenue | 3,051,950 | 473,806 | ||||||
Accrued refunds payable | 3,744,999 | 248,118 | ||||||
Amounts due to sellers | 608,403 | 268,167 | ||||||
Other accrued expenses | 5,310,917 | 1,108,260 | ||||||
Accrued workers’ compensation | 1,119,762 | — | ||||||
Accrued benefits | 1,221,642 | 1,266 | ||||||
Accrued interest | 560,276 | 18,580 | ||||||
Accrued expenses | $ | 22,909,956 | $ | 4,084,263 | ||||
7. | LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS |
2007 | 2006 | |||||||
First Lien Facilities and Second Lien Facility | $ | 147,300,000 | $ | — | ||||
Credit agreement | — | 24,843,750 | ||||||
Revolving credit facility | 7,000,000 | 500,000 | ||||||
Capital lease obligations | 418,683 | 678,109 | ||||||
Other | 75,000 | — | ||||||
154,793,683 | 26,021,859 | |||||||
Less — obligations maturing within one year | 3,213,459 | 1,040,712 | ||||||
Long-term debt — net of current portion | $ | 151,580,224 | $ | 24,981,147 | ||||
F-43
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F-44
Table of Contents
2008 | $ | 3,213,459 | ||
2009 | 5,943,519 | |||
2010 | 8,733,905 | |||
2011 | 11,602,800 | |||
2012 | 91,300,000 | |||
2013 and thereafter | 34,000,000 |
8. | EARNINGS PER SHARE |
Period from | ||||||||
Year Ended | September 1, 2006 | |||||||
December 31, | to December 31, | |||||||
2007 | 2006 | |||||||
Basic earnings per share computation: | ||||||||
Numerator — | ||||||||
Net income applicable to common shares | $ | 1,611,536 | $ | 285,733 | ||||
Denominator — | ||||||||
Weighted-average number of common shares outstanding | 86,050,106 | 25,350,000 | ||||||
Basic earnings per common share | $ | 0.02 | $ | 0.01 | ||||
Diluted earnings per share computation: | ||||||||
Numerator — | ||||||||
Net income applicable to common shares | $ | 1,611,536 | $ | 285,733 | ||||
Denominator: | ||||||||
Weighted-average number of common shares outstanding | 86,050,106 | 25,350,000 | ||||||
Weighted-average additional shares assuming conversion of stock options | 790,249 | — | ||||||
Total weighted average common shares outstanding-diluted basis | 86,840,355 | 25,350,000 | ||||||
Diluted earnings per common share | $ | 0.02 | $ | 0.01 | ||||
F-45
Table of Contents
9. | EQUITY |
Year Ended | ||||
December 31, | ||||
2007 | ||||
Risk — free interest rate | 4.70 | % | ||
Expected term | 6.25 | |||
Expected volatility | 44.65 | % | ||
Dividend yield | — | |||
Weighted-average fair value | 0.55 | % |
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Weighted — | Weighted — | |||||||||||
Average | Average Grant | |||||||||||
Exercise | Date Fair | |||||||||||
Shares | Price | Value | ||||||||||
Outstanding at September 1, 2006 | — | $ | — | $ | — | |||||||
Grants | 2,792,500 | 1.00 | 0.53 | |||||||||
Forfeitures | — | — | — | |||||||||
Outstanding at December 31, 2006 | 2,792,500 | 1.00 | 0.53 | |||||||||
Grants | 6,163,500 | 1.08 | 0.57 | |||||||||
Forfeitures | (25,000 | ) | 1.00 | 0.52 | ||||||||
Outstanding at December 31, 2007 | 8,931,000 | 1.05 | 0.55 | |||||||||
Vested and exercisable at December 31, 2007 | 6,989,125 | 1.00 | 0.53 |
10. | INCOME TAXES |
Period from | ||||||||
September 1, | ||||||||
Year Ended | 2006 to | |||||||
December 31, | December 31, | |||||||
2007 | 2006 | |||||||
Current: | ||||||||
Federal | $ | 1,193,080 | — | |||||
State and local | 1,314,622 | — | ||||||
2,507,702 | — | |||||||
Deferred: | ||||||||
Federal | (220,841 | ) | 163,864 | |||||
State and local | 41,356 | 14,614 | ||||||
(179,485 | ) | 178,478 | ||||||
Income tax provision | $ | 2,328,217 | $ | 178,478 | ||||
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2007 | 2006 | |||||||
Deferred tax assets — net — current: | ||||||||
Allowance for doubtful accounts | $ | 3,885,073 | $ | 1,070,199 | ||||
Accrued liabilities | 2,480,668 | 413,178 | ||||||
Loss carryforward | 157,824 | 109,394 | ||||||
Deferred revenue | — | 175,460 | ||||||
Other | 65,990 | 2,591 | ||||||
Subtotal | 6,589,555 | 1,770,822 | ||||||
Deferred revenue | (621,947 | ) | — | |||||
Total current deferred tax assets — net | $ | 5,967,608 | $ | 1,770,822 | ||||
Deferred tax liabilities — net — noncurrent: | ||||||||
Intangibles | $ | 8,038,652 | $ | 2,627,125 | ||||
Other | 650,263 | (300 | ) | |||||
Total noncurrent deferred tax liabilities — net | $ | 8,688,915 | $ | 2,626,825 | ||||
Period from | ||||||||
September 1, | ||||||||
Year Ended | 2006 to | |||||||
December 31, | December 31, | |||||||
2007 | 2006 | |||||||
Income tax benefit computed at U.S. federal statutory rate | $ | 1,339,515 | $ | 157,831 | ||||
State income taxes, net of federal income tax benefit | 750,948 | 14,614 | ||||||
Effective state rate differences | 158,058 | — | ||||||
Nondeductible expenses | 79,696 | 6,033 | ||||||
Income tax provision | $ | 2,328,217 | $ | 178,478 | ||||
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Unrecognized | ||||
Balance as of January 1, 2007 | $ | — | ||
Additions and reductions based on tax positions related to the current year | 100,000 | |||
Additions and reductions for tax positions of prior years | — | |||
Settlements with taxing authorities | — | |||
Expiration of the statute of limitations for the assessment of taxes | — | |||
Balance as of December 31, 2007 | $ | 100,000 | ||
11. | LEASE COMMITMENTS |
Capital | Operating | |||||||
Leases | Leases | |||||||
2008 | $ | 264,566 | $ | 1,643,623 | ||||
2009 | 152,505 | 1,262,933 | ||||||
2010 | 35,393 | 921,191 | ||||||
2011 | 11,579 | 748,526 | ||||||
2012 | — | 458,889 | ||||||
2013 and thereafter | — | 322,230 | ||||||
Total minimum lease payments | 464,043 | $ | 5,357,392 | |||||
Less amounts representing interest | 45,360 | |||||||
Present value of net minimum payments under capital leases | 418,683 | |||||||
Less current portion | 238,459 | |||||||
$ | 180,224 | |||||||
12. | COMMITMENTS AND CONTINGENCIES |
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13. | SEGMENT INFORMATION |
Home | Home | |||||||||||||||
Infusion | Nursing | Corporate | Consolidated | |||||||||||||
Revenues | $ | 131,356,459 | $ | 62,496,708 | $ | — | $ | 193,853,167 | ||||||||
Income from Operations | 21,751,759 | 12,047,544 | (15,148,318 | ) | 18,650,985 | |||||||||||
Reconciliation to net income: | ||||||||||||||||
Other income | (613,017 | ) | ||||||||||||||
Interest and other financing costs | 15,324,249 | |||||||||||||||
Income tax provision | 2,328,217 | |||||||||||||||
Net Income | $ | 1,611,536 | ||||||||||||||
Total assets | $ | 199,435,620 | $ | 75,063,733 | $ | 13,770,813 | $ | 288,270,166 | ||||||||
Goodwill | $ | 143,348,615 | $ | 53,443,933 | $ | — | $ | 196,792,548 | ||||||||
Purchases of property and equipment | $ | 1,991,941 | $ | 659,819 | $ | 473,250 | $ | 3,125,010 | ||||||||
14. | RELATED PARTY TRANSACTIONS |
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15. | SUBSEQUENT EVENTS |
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September 30, 2009 | December 31, 2008 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 6,857 | $ | 264 | ||||
Accounts receivable — net of allowance for doubtful accounts of $6,435 and $9,675 on September 30, 2009 and December 31, 2008, respectively | 42,592 | 52,071 | ||||||
Inventories | 3,935 | 4,580 | ||||||
Deferred tax assets | 3,662 | 4,973 | ||||||
Prepaids and other current assets | 2,571 | 1,332 | ||||||
Total current assets | 59,617 | 63,220 | ||||||
PROPERTY AND EQUIPMENT — Net | 7,254 | 7,282 | ||||||
GOODWILL | 220,350 | 210,737 | ||||||
INTANGIBLE ASSETS — Net | 21,605 | 21,860 | ||||||
DEFERRED FINANCING FEES — Net | 1,605 | 2,088 | ||||||
OTHER ASSETS | 1,820 | 1,693 | ||||||
TOTAL ASSETS | $ | 312,251 | $ | 306,880 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 2,905 | $ | 3,629 | ||||
Accrued expenses | 18,544 | 21,087 | ||||||
Current portion of long-term debt | 7,945 | 5,800 | ||||||
Current portion of capital lease obligations | 145 | 189 | ||||||
Total current liabilities | 29,539 | 30,705 | ||||||
Long-term debt, net of current portion | 133,958 | 145,600 | ||||||
Long-term capital lease obligations, net of current portion | 250 | 231 | ||||||
Deferred tax liabilities | 7,339 | 6,879 | ||||||
Total liabilities | 171,086 | 183,415 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 11) | ||||||||
Preferred stock, $0.001 par value — 5,000,000 shares authorized; 25,036 and 20,036 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively(with a liquidation preference of $26,571 and $20,280 as of September 30, 2009 and December 31, 2008, respectively) | 25,036 | 20,036 | ||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, $0.001 par value — 125,000,000 shares authorized; 90,898,079 issued and outstanding as of September 30, 2009 and December 31, 2008, respectively | 91 | 91 | ||||||
Additional paid-in capital | 96,524 | 95,474 | ||||||
Retained earnings | 19,514 | 7,864 | ||||||
Total stockholders’ equity | 116,129 | 103,429 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 312,251 | $ | 306,880 | ||||
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Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
NET REVENUE | $ | 187,457 | $ | 166,746 | ||||
COSTS AND EXPENSES: | ||||||||
Cost of goods (excluding depreciation and amortization) | 59,597 | 47,198 | ||||||
Cost of services provided | 31,534 | 32,228 | ||||||
Selling, distribution and administrative expenses | 64,274 | 59,878 | ||||||
Provision for doubtful accounts | 4,685 | 3,767 | ||||||
Depreciation and amortization | 2,986 | 2,577 | ||||||
Write-off of stock issuance costs | — | 84 | ||||||
Total costs and expenses | 163,076 | 145,732 | ||||||
OPERATING INCOME | 24,381 | 21,014 | ||||||
INTEREST AND OTHER FINANCING COSTS | (5,493 | ) | (9,231 | ) | ||||
OTHER INCOME (EXPENSE) — NET | 1 | (26 | ) | |||||
INCOME BEFORE INCOME TAXES | 18,889 | 11,757 | ||||||
PROVISION FOR INCOME TAXES | 7,239 | 5,574 | ||||||
NET INCOME | 11,650 | 6,183 | ||||||
CUMULATIVE PREFERRED STOCK DIVIDENDS | (1,291 | ) | (76 | ) | ||||
INCOME AVAILABLE TO COMMON STOCKHOLDERS | $ | 10,359 | $ | 6,107 | ||||
BASIC EARNINGS PER COMMON SHARE | $ | 0.11 | $ | 0.07 | ||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.10 | $ | 0.06 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||
Basic | 90,898 | 90,898 | ||||||
Diluted | 104,424 | 95,941 | ||||||
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Additional | ||||||||||||||||||||
Common Stock | Paid-in | Retained | ||||||||||||||||||
Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
BALANCE — December 31, 2008 | 90,898 | $ | 91 | $ | 95,474 | $ | 7,864 | $ | 103,429 | |||||||||||
Compensation expense related to issuance of stock options | — | — | 1,050 | — | 1,050 | |||||||||||||||
Net income | — | — | — | 11,650 | 11,650 | |||||||||||||||
BALANCE — September 30, 2009 | 90,898 | $ | 91 | $ | 96,524 | $ | 19,514 | $ | 116,129 | |||||||||||
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Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 11,650 | $ | 6,183 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Provision for doubtful accounts | 4,685 | 3,767 | ||||||
Depreciation and amortization | 2,986 | 2,577 | ||||||
Write-off of stock issuance costs | — | 84 | ||||||
Amortization of deferred financing fees | 581 | 574 | ||||||
Provision for deferred taxes | 865 | — | ||||||
Loss (gain) on fixed asset dispositions | 219 | 76 | ||||||
Compensation expense related to issuance of stock options | 1,050 | 906 | ||||||
Change in operating assets and liabilities — net of effects of acquisitions: | ||||||||
Accounts receivable | 5,890 | (4,375 | ) | |||||
Inventories | 869 | (363 | ) | |||||
Prepaids and other current assets | (1,172 | ) | 361 | |||||
Other assets | (143 | ) | (254 | ) | ||||
Accounts payable and accrued expenses | (5,177 | ) | (3,970 | ) | ||||
Net cash provided by operating activities | 22,303 | 5,566 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments for business acquisitions, net of cash acquired | (6,196 | ) | (11,559 | ) | ||||
Repayment of amounts due to sellers | (124 | ) | (1,128 | ) | ||||
Cash paid for pre acquisition costs | — | (338 | ) | |||||
Cash paid for property and equipment | (2,410 | ) | (2,495 | ) | ||||
Proceeds from disposition of fixed assets | 50 | 285 | ||||||
Net cash used in investing activities | (8,680 | ) | (15,235 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from borrowings | — | 5,750 | ||||||
Repayment of long-term debt and capital lease obligations | (11,929 | ) | (6,198 | ) | ||||
Payment of deferred financing fees | (101 | ) | (111 | ) | ||||
Proceeds from issuance of preferred stock | 5,000 | 10,036 | ||||||
Net cash (used in) provided by financing activities | (7,030 | ) | 9,477 | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 6,593 | (192 | ) | |||||
CASH AND CASH EQUIVALENTS — Beginning of period | 264 | 1,679 | ||||||
CASH AND CASH EQUIVALENTS — End of period | $ | 6,857 | $ | 1,487 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 5,112 | $ | 9,544 | ||||
Income taxes | $ | 4,177 | $ | 3,412 | ||||
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS: | ||||||||
Note payable issued to acquire business | $ | 2,250 | $ | — | ||||
Capital lease obligations incurred to acquire property and equipment | $ | 156 | $ | 115 |
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1. | OVERVIEW, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES |
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Useful Life | ||
Medical equipment | 13 months to 5 years | |
Leasehold improvements | Base term of lease or useful life, whichever is shorter | |
Equipment, vehicles, and other assets | 3 to 5 years | |
Building | 20 years |
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2. | ACQUISITIONS |
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OH | NHI | IPL | WC | |||||||||||||
Cash | $ | 78 | $ | 60 | $ | — | $ | 76 | ||||||||
Accounts receivable | 1,262 | 143 | 1,144 | 507 | ||||||||||||
Inventories | 224 | 21 | 155 | 181 | ||||||||||||
Deferred income taxes | — | 68 | 118 | 165 | ||||||||||||
Other assets | 66 | 2 | — | 7 | ||||||||||||
Property and equipment | 353 | 6 | 93 | 62 | ||||||||||||
Intangible assets | 51 | 214 | 629 | 27 | ||||||||||||
Goodwill | 8,718 | 4,155 | 5,185 | 3,603 | ||||||||||||
Total identifiable assets | 10,752 | 4,669 | 7,324 | 4,628 | ||||||||||||
Accounts payable and | ||||||||||||||||
Accrued expenses | 872 | 264 | 292 | 783 | ||||||||||||
Contingent purchase price obligations | 975 | — | — | — | ||||||||||||
Note payable | 2,250 | — | — | — | ||||||||||||
Deferred income taxes | 256 | 103 | 547 | — | ||||||||||||
Total identifiable net assets | 6,399 | 4,302 | 6,485 | 3,845 | ||||||||||||
Amounts due to sellers for cash | 78 | 60 | — | 76 | ||||||||||||
Cash purchase price | $ | 6,321 | $ | 4,242 | $ | 6,485 | $ | 3,769 | ||||||||
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3. | PROPERTY AND EQUIPMENT — NET |
September 30, 2009 | December 31, 2008 | |||||||
Medical equipment | $ | 9,050 | $ | 7,652 | ||||
Leasehold improvements | 1,354 | 971 | ||||||
Equipment, vehicles, and other assets | 5,482 | 4,925 | ||||||
Total property and equipment — gross | 15,886 | 13,548 | ||||||
Less accumulated depreciation and amortization | (8,632 | ) | (6,266 | ) | ||||
Property and equipment — net | $ | 7,254 | $ | 7,282 | ||||
September 30, 2009 | December 31, 2008 | |||||||
Medical equipment | $ | 369 | $ | 369 | ||||
Equipment, vehicles, and other assets | 712 | 556 | ||||||
Total property and equipment — gross | 1,081 | 925 | ||||||
Less accumulated depreciation and amortization | (542 | ) | (394 | ) | ||||
Property and equipment — net | $ | 539 | $ | 531 | ||||
4. | GOODWILL AND INTANGIBLE ASSETS |
Balance — December 31, 2008 | $ | 210,737 | ||
Goodwill acquired | 8,718 | |||
Measurement period adjustments relating to 2008 acquisitions | 895 | |||
Balance — September 30, 2009 | $ | 220,350 | ||
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September 30, 2009 | December 31, 2008 | |||||||
Trademarks — nonamortizable | $ | 15,329 | $ | 15,329 | ||||
Certificates of need — nonamortizable | 5,486 | 5,486 | ||||||
Non-compete agreements — amortizable | 690 | 645 | ||||||
Trademarks — amortizable | 1,220 | 1,220 | ||||||
Other intangibles — amortizable | 65 | 57 | ||||||
Accumulated amortization: | ||||||||
Noncompete agreements | (415 | ) | (295 | ) | ||||
Trademarks | (725 | ) | (550 | ) | ||||
Other intangibles | (45 | ) | (32 | ) | ||||
Intangibleassets-net | $ | 21,605 | $ | 21,860 | ||||
2009 (three months) | $ | 94 | ||
2010 | 336 | |||
2011 | 301 | |||
2012 | 39 | |||
2013 | 17 | |||
2014 and thereafter | 3 | |||
$ | 790 | |||
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5. | ACCRUED EXPENSES |
September 30, 2009 | December 31, 2008 | |||||||
Accrued accounting and legal fees | $ | — | $ | 143 | ||||
Accrued payroll expenses | 5,474 | 7,280 | ||||||
Deferred revenue | 3,206 | 3,088 | ||||||
Accrued refunds payable | 3,409 | 3,636 | ||||||
Amounts due to sellers | 30 | 297 | ||||||
Accrued seller earnout | 920 | — | ||||||
Other accrued expenses | 3,574 | 4,916 | ||||||
Accrued workers’ compensation | 1,181 | 1,235 | ||||||
Accrued benefits | 714 | 303 | ||||||
Accrued interest | 36 | 189 | ||||||
Accrued expenses | $ | 18,544 | $ | 21,087 | ||||
6. | LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS |
September 30, 2009 | December 31, 2008 | |||||||
First Lien Facilities and Second Lien Facility | $ | 139,653 | $ | 144,400 | ||||
Revolving credit facility | — | 7,000 | ||||||
Note payable | 2,250 | — | ||||||
Capital lease obligations | 395 | 420 | ||||||
142,298 | 151,820 | |||||||
Less — obligations maturing within one year | 8,090 | 5,989 | ||||||
Long-term debt — net of current portion | $ | 134,208 | $ | 145,831 | ||||
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2009 (3 months) | $ | 1,486 | ||
2010 | 11,057 | |||
2011 | 11,673 | |||
2012 | 84,062 | |||
2013 | 34,020 | |||
2014 and thereafter | — | |||
$ | 142,298 | |||
7. | EARNINGS PER COMMON SHARE |
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Basic earnings per share computation: | ||||||||
Numerator — net income | $ | 11,650 | $ | 6,183 | ||||
Cumulative preferred stock dividends | (1,291 | ) | (76 | ) | ||||
Income available to common shareholders | $ | 10,359 | $ | 6,107 | ||||
Denominator — weighted-average number of common shares outstanding | 90,898 | 90,898 | ||||||
Basic earnings per common share | $ | 0.11 | $ | 0.07 | ||||
Diluted earnings per share computation: | ||||||||
Numerator — net income | $ | 11,650 | $ | 6,183 | ||||
Cumulative preferred stock dividends | (1,291 | ) | (76 | ) | ||||
Income available to common shareholders | $ | 10,359 | $ | 6,107 | ||||
Denominator: | ||||||||
Weighted-average number of common shares outstanding | 90,898 | 90,898 | ||||||
Weighted-average additional shares assuming exercise of stock options and conversion of preferred stock | 13,526 | 5,043 | ||||||
Total weighted average common shares outstanding – diluted basis | 104,424 | 95,941 | ||||||
Diluted earnings per common share | $ | 0.10 | $ | 0.06 | ||||
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8. | EQUITY |
Date of | Liquidation | Dividend | ||||||||||||||||||||||
Issue | Issue | Amount | Shares | Preference | Rate | Redeemable | Exchangeable | |||||||||||||||||
4/22/08 | Series A | $ | 4,000,000 | 4,000 | $ | 1,000 | 11 | %(A) | At any time with the consent of over 75% of the preferred shareowners | At any time into shares of Common Stock | ||||||||||||||
9/22/08 | Series A | $ | 6,000,000 | 6,000 | $ | 1,000 | 11 | %(A) | At any time with the consent of over 75% of the preferred shareowners | At any time into shares of Common Stock | ||||||||||||||
9/23/08 | Series A | $ | 36,500 | 36 | $ | 1,000 | 11 | %(A) | At any time with the consent of over 75% of the preferred shareowners | At any time into shares of Common Stock | ||||||||||||||
12/19/08 | Series A | $ | 10,000,000 | 10,000 | $ | 1,000 | 11 | %(A) | At any time with the consent of over 75% of the preferred shareowners | At any time into shares of Common Stock | ||||||||||||||
6/9/09 | Series A | $ | 5,000,000 | 5,000 | $ | 1,000 | 4 | %(A) | At any time with the consent of over 75% of the preferred shareowners | At any time into shares of Common Stock |
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Risk-free interest rate | 1.99 | % | ||
Expected term | 6.25 | |||
Expected volatility | 44.65 | % | ||
Dividend yield | — |
Weighted | ||||||||||||
Weighted | Average | |||||||||||
Average | Grant | |||||||||||
Exercise | Date Fair | |||||||||||
Options | Price | Value | ||||||||||
Outstanding — December 31, 2008 | 8,780,000 | $ | 1.05 | $ | 0.55 | |||||||
Grants | 2,653,750 | 1.95 | 0.90 | |||||||||
Forfeitures | (462,750 | ) | 1.23 | 0.51 | ||||||||
Outstanding — September 30, 2009 | 10,971,000 | $ | 1.26 | $ | 0.63 | |||||||
Vested and exercisable — September 30, 2009 | 4,188,125 | $ | 1.05 | $ | 0.55 |
9. | INCOME TAXES |
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Federal | $ | 6,384 | $ | 4,129 | ||||
State and local | 855 | 1,445 | ||||||
Total income tax provision | $ | 7,239 | $ | 5,574 | ||||
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Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Income tax expense computed at U.S. federal statutory rate | $ | 6,611 | $ | 4,115 | ||||
State income taxes (net of federal income tax benefit) and nondeductible expenses | 628 | 1,459 | ||||||
Total income tax provision | $ | 7,239 | $ | 5,574 | ||||
10. | LEASE COMMITMENTS |
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Capital | Operating | |||||||
Leases | Leases | |||||||
2009 (3 months) | $ | 44 | $ | 864 | ||||
2010 | 150 | 3,001 | ||||||
2011 | 125 | 2,112 | ||||||
2012 | 84 | 1,474 | ||||||
2013 | 21 | 744 | ||||||
2014 and thereafter | — | 18 | ||||||
Total minimum lease payments | 424 | $ | 8,213 | |||||
Less amounts representing interest | 29 | |||||||
Present value of net minimum payments under capital leases | 395 | |||||||
Less current portion | 145 | |||||||
$ | 250 | |||||||
11. | COMMITMENTS AND CONTINGENCIES |
12. | SEGMENT INFORMATION |
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Home | ||||||||||||||||
Infusion | Nursing | Corporate | Consolidated | |||||||||||||
As of and for the Nine Months ended September 30, 2009 | ||||||||||||||||
Net Revenue | $ | 138,497 | $ | 48,960 | $ | — | $ | 187,457 | ||||||||
Operating Income | 23,708 | 7,422 | (6,749 | ) | 24,381 | |||||||||||
Reconciliation to Net Income: | ||||||||||||||||
Interest and other financing costs | (5,493 | ) | ||||||||||||||
Other income (expense) — net | 1 | |||||||||||||||
Provision for income taxes | (7,239 | ) | ||||||||||||||
Net Income | $ | 11,650 | ||||||||||||||
Total Assets | $ | 224,900 | $ | 72,219 | $ | 15,132 | $ | 312,251 | ||||||||
Goodwill | $ | 167,082 | $ | 53,268 | $ | — | $ | 220,350 | ||||||||
Purchases of Property and Equipment | $ | 2,457 | $ | 73 | $ | 36 | $ | 2,566 | ||||||||
Home | ||||||||||||||||
Infusion | Nursing | Corporate | Consolidated | |||||||||||||
As of December 31, 2008 and for the Nine Months ended September 30, 2008 | ||||||||||||||||
Net Revenue | $ | 117,165 | $ | 49,581 | $ | — | $ | 166,746 | ||||||||
Operating Income | 20,670 | 9,016 | (8,672 | ) | 21,014 | |||||||||||
Reconciliation to Net Income: | ||||||||||||||||
Interest and other financing costs | (9,231 | ) | ||||||||||||||
Other income (expense) — net | (26 | ) | ||||||||||||||
Provision for income taxes | (5,574 | ) | ||||||||||||||
Net Income | $ | 6,183 | ||||||||||||||
Total Assets | $ | 221,259 | $ | 74,494 | $ | 11,127 | $ | 306,880 | ||||||||
Goodwill | $ | 157,468 | $ | 53,269 | $ | — | $ | 210,737 | ||||||||
Purchases of Property and Equipment | $ | 3,534 | $ | 164 | $ | 246 | $ | 3,944 | ||||||||
13. | RELATED PARTY TRANSACTIONS |
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14. | SUBSEQUENT EVENTS |
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PUBLIC ACCOUNTING FIRM
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CONSOLIDATED BALANCE SHEET
As of August 31, 2006
ASSETS | ||||
Current Assets: | ||||
Cash and cash equivalents | $ | 473,491 | ||
Accounts receivable, net of allowance for doubtful accounts of $2,044,448 | 4,721,553 | |||
Inventories | 646,380 | |||
Deferred income taxes | 1,379,467 | |||
Prepaid expenses and other current assets | 72,394 | |||
Total current assets | 7,293,285 | |||
Property and equipment — net | 1,470,973 | |||
Intangible assets — net | 202,083 | |||
Goodwill | 2,739,680 | |||
Other assets | 25,006 | |||
Total assets | $ | 11,731,027 | ||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||
Current liabilities: | ||||
Accounts payable | $ | 1,762,525 | ||
Accrued expenses | 1,624,528 | |||
Current portion of capital lease obligations | 290,021 | |||
Current portion of long-term debt | 1,662,886 | |||
Total current liabilities | 5,339,960 | |||
Long-term liabilities: | ||||
Deferred income taxes | 214,496 | |||
Capital lease obligations, net of current portion | 240,018 | |||
Long-term debt, net of current portion | 1,078,096 | |||
Total long-term liabilities | 1,532,610 | |||
Commitments and contingencies (Note 12) | ||||
Series A cumulative convertible preferred stock, $.0001 par value, 245,000 shares authorized, issued and outstanding with a liquidation preference of $6,314,257 | 6,314,257 | |||
Shareholders’ deficit: | ||||
Common stock, $.0001 par value, 755,000 shares authorized; 68,236 issued and outstanding at August 31, 2006 | 7 | |||
Accumulated deficit | (1,455,807 | ) | ||
Total shareholders’ deficit | (1,455,800 | ) | ||
Total liabilities and shareholders’ deficit | $ | 11,731,027 | ||
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CONSOLIDATED STATEMENT OF OPERATIONS
For the period from January 1, 2006 to August 31, 2006
Net revenue | $ | 19,741,008 | ||
Cost and expenses: | ||||
Cost of goods (excluding depreciation and amortization) | 10,792,878 | |||
Cost of services | 1,625,679 | |||
Selling, distribution, and administrative | 5,982,129 | |||
Provision for doubtful accounts | 723,105 | |||
Depreciation and amortization | 1,572,923 | |||
Total costs and expenses | 20,696,714 | |||
Operating loss | (955,706 | ) | ||
Interest and other financing costs — net | (260,813 | ) | ||
Other income — net | 4,000 | |||
Loss before income taxes | (1,212,519 | ) | ||
Income tax benefit | 432,431 | |||
Net loss | (780,088 | ) | ||
Undistributed cumulative preferred stock dividends | (352,077 | ) | ||
Net loss attributable to common shareholders | $ | (1,132,165 | ) | |
Weighted average number of common shares outstanding: | ||||
Basic and diluted | 68,236 | |||
Net loss per common share | ||||
Basic and diluted | $ | (16.59 | ) | |
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CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT
For the period from January 1, 2006 to August 31, 2006
Total | ||||||||||||||||
Common Stock | Accumulated | Shareholders’ | ||||||||||||||
Shares | Par Value | Deficit | Deficit | |||||||||||||
Balance at January 1, 2006 | 68,236 | $ | 7 | $ | (323,642 | ) | $ | (323,635 | ) | |||||||
Net loss | — | — | (780,088 | ) | (780,088 | ) | ||||||||||
Undistributed cumulative preferred stock dividends | — | — | (352,077 | ) | (352,077 | ) | ||||||||||
Balance at August 31, 2006 | 68,236 | $ | 7 | $ | (1,455,807 | ) | $ | (1,455,800 | ) | |||||||
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CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from January 1, 2006 to August 31, 2006
Cash flows from operating activities | ||||
Net loss | $ | (780,088 | ) | |
Adjustments to reconcile net loss to cash flows provided by operating activities: | ||||
Provision for doubtful accounts | 723,105 | |||
Depreciation and amortization | 1,572,923 | |||
Deferred taxes, net | (432,431 | ) | ||
Amortization of debt issuance costs | 2,526 | |||
Changes in assets and liabilities | ||||
Decrease in accounts receivable | 941,635 | |||
Decrease in inventories | 180,295 | |||
Increase in prepaids and other | 75,025 | |||
Decrease in accounts payable and accrued expenses | (441,613 | ) | ||
Net cash provided by operating activities | 1,841,377 | |||
Cash flows from investing activities | ||||
Cash paid for property and equipment | (597,137 | ) | ||
Net cash used in investing activities | (597,137 | ) | ||
Cash flows from financing activities | ||||
Principal payments on debt and capital lease obligations | (910,663 | ) | ||
Net cash used in financing activities | (910,663 | ) | ||
Increase in cash and cash equivalents | 333,577 | |||
Cash and cash equivalents — January 1, 2006 | 139,914 | |||
Cash and cash equivalents — August 31, 2006 | $ | 473,491 | ||
Cash paid during the period for: | ||||
Interest | $ | 258,528 | ||
Income taxes | $ | 500,215 | ||
Non-cash activities | ||||
Undistributed cumulative preferred stock dividends | $ | 352,077 |
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1. | Description of business |
2. | Summary of significant accounting policies |
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Useful Life | ||
Leasehold improvements | Base term of lease or useful life, whichever is shorter | |
Medical equipment | 13 months to 5 years | |
Equipment, vehicles, and other assets | 3 to 5 years |
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Period Ended | ||||
August 31, 2006 | ||||
Net loss | $ | (780,088 | ) | |
Undeclared cumulative preferred stock dividends | (352,077 | ) | ||
Net loss applicable to common shares | $ | (1,132,165 | ) | |
Weighted average number of common shares outstanding | 68,236 | |||
Basic and diluted loss per common share | $ | (16.59 | ) | |
2003 Stock | ||||
Assumption | Grant | |||
Risk-free interest rate | 3.16 | % | ||
Dividend yield | 0 | % | ||
Expected years until exercise | 6.25 |
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3. | Property and equipment |
Medical equipment | $ | 2,318,432 | ||
Leasehold improvements | 163,915 | |||
Equipment, vehicles, and other | 423,266 | |||
Total property and equipment | 2,905,613 | |||
Less accumulated depreciation and amortization | (1,434,640 | ) | ||
Property and equipment — net | $ | 1,470,973 | ||
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Accumulated | Net Book | |||||||||||
Cost | Amortization | Value | ||||||||||
Medical equipment | $ | 860,086 | $ | 388,078 | $ | 472,008 | ||||||
Equipment, vehicles, and other assets | 427,106 | 384,097 | 43,009 | |||||||||
$ | 1,287,192 | $ | 772,175 | $ | 515,017 | |||||||
4. | Intangible assets |
Noncompete agreements | $ | 900,000 | ||
Purchased contracts | 250,000 | |||
Total intangible assets | 1,150,000 | |||
Accumulated amortization | 947,917 | |||
Intangible assets — net | $ | 202,083 | ||
Four months ending December 31, | ||||
2006 | 33,333 | |||
Twelve months ending December 31, | ||||
2007 | 25,000 | |||
2008 | 25,000 | |||
2009 | 25,000 | |||
2010 | 25,000 | |||
2011 | 25,000 |
5. | Accrued expenses |
Accrued accounting and legal fees | $ | 204,937 | ||
Accrued payroll expenses | 633,575 | |||
Deferred revenue | 251,906 | |||
Accrued refunds payable | 126,129 | |||
Uninvoiced inventory and other accrued expenses | 407,981 | |||
Accrued expenses — net | $ | 1,624,528 | ||
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6. | Long-term debt |
Term loan facility | $ | 325,000 | ||
Revolving credit facility | 1,321,410 | |||
Note payable to Omni-Professional Home Services, Inc. | 1,000,000 | |||
Other note payable | 94,572 | |||
2,740,982 | ||||
Less — obligations maturing within one year | 1,662,886 | |||
Long-term debt — net of current portion | $ | 1,078,096 | ||
Four months ending December 31, | ||||
2006 | $ | 1,651,742 | ||
Twelve months ending December 31, | ||||
2007 | 1,016,945 | |||
2008 | 18,473 | |||
2009 | 20,131 | |||
2010 | 21,942 | |||
Thereafter | 11,749 |
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7. | Lease commitments |
Capital Leases | Operating Leases | |||||||
Four months ending December 31, | ||||||||
2006 | $ | 132,949 | $ | 73,717 | ||||
Twelve months ending December 31, | ||||||||
2007 | 278,907 | 146,334 | ||||||
2008 | 167,879 | 41,174 | ||||||
2009 | 29,698 | 14,104 | ||||||
2010 | — | — | ||||||
Total minimum lease payments | 609,433 | $ | 275,329 | |||||
Less amounts representing interest | 79,394 | |||||||
Present value of net minimum payments under capital leases | 530,039 | |||||||
Less current portion | 290,021 | |||||||
$ | 240,018 | |||||||
8. | Series A cumulative convertible preferred stock |
9. | Shareholders’ equity |
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10. | Income taxes |
Current: | ||||
Federal | $ | — | ||
State and local | — | |||
— | ||||
Deferred: | ||||
Federal | (413,022 | ) | ||
State and local | (19,409 | ) | ||
Total income tax benefit | $ | (432,431 | ) | |
Deferred tax assets: | ||||
Allowance for doubtful accounts | $ | 828,001 | ||
Accrued liabilities | 180,466 | |||
Net operating loss carryforward | 371,000 | |||
Total current deferred tax assets | $ | 1,379,467 | ||
Deferred tax liabilities: | ||||
Property and equipment | $ | 136,804 | ||
Intangible assets | 77,692 | |||
Total deferred tax liabilities | $ | 214,496 | ||
Income tax benefit computed at U.S. federal statutory rate | $ | (412,256 | ) | |
State income taxes — net of federal income tax effect | (12,810 | ) | ||
Permanent differences | 2,767 | |||
Other | (10,132 | ) | ||
Income tax benefit | $ | (432,431 | ) | |
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11. | Employee benefits program |
12. | Commitments and contingencies |
13. | Subsequent events |
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REGISTERED PUBLIC ACCOUNTING FIRM
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BALANCE SHEET
As of August 31, 2006
ASSETS | ||||
Current assets | ||||
Cash and cash equivalents | $ | 144,949 | ||
Cash, restricted to pay preference vendor payables | 192,712 | |||
Accounts receivable, net of allowance for doubtful accounts of $1,545,238 | 4,069,823 | |||
Inventories | 750,764 | |||
Prepaid expenses and other current assets | 9,978 | |||
Total current assets | 5,168,226 | |||
Property and equipment | ||||
Medical equipment | 2,899,767 | |||
Office furniture, fixtures and equipment | 54,987 | |||
Vehicles | 237,525 | |||
Leasehold improvements | 2,500 | |||
3,194,779 | ||||
Less accumulated depreciation | 1,237,263 | |||
Net property and equipment | 1,957,516 | |||
Other non-current assets | ||||
Deposits | 103,927 | |||
Total assets | $ | 7,229,669 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||
Current liabilities | ||||
Accounts payable | $ | 935,599 | ||
Current portion of long-term debt | 455,879 | |||
Current portion of capital lease obligations | 260,593 | |||
Accrued expenses | 1,252,340 | |||
Deferred revenue | 244,194 | |||
Total current liabilities | 3,148,605 | |||
Capital lease obligations, net of current portion | 317,776 | |||
Long-term debt, net of current portion | 2,110,870 | |||
Total long-term liabilities | 2,428,646 | |||
Commitments and contingencies (Note 10) | ||||
Shareholders’ equity | ||||
Common stock, $.01 par value, 200,000 shares authorized; 2,000 shares issued and outstanding at August 31, 2006 | 20 | |||
Retained earnings | 1,652,398 | |||
Total shareholders’ equity | 1,652,418 | |||
Total liabilities and shareholders’ equity | $ | 7,229,669 | ||
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STATEMENT OF OPERATIONS
For the period from January 1, 2006 to August 31, 2006
Revenues, net | $ | 13,216,900 | ||
Costs and expenses | ||||
Cost of goods (excluding depreciation and amortization) | 3,934,832 | |||
Cost of services | 1,774,423 | |||
Selling, distribution, and administrative | 5,563,990 | |||
Provision for doubtful accounts | 597,379 | |||
Depreciation & amortization | 692,084 | |||
Loss on asset disposal | 24,285 | |||
Total costs and expenses | 12,586,993 | |||
Income from operations | 629,907 | |||
Interest expense, net | 160,111 | |||
Other income — net | (172,444 | ) | ||
Income before income taxes | 642,240 | |||
Income tax benefit | 5,113 | |||
Net income | $ | 647,353 | ||
Basic and diluted net income per share | $ | 323.68 | ||
Weighted average number of shares outstanding | 2,000 | |||
Pro forma income tax information (Note 2) — Unaudited | ||||
Pro forma income tax expense | $ | 263,319 | ||
Pro forma net income | $ | 378,921 | ||
Basic and diluted pro forma net income per share | $ | 189.46 |
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STATEMENT OF SHAREHOLDERS’ EQUITY
For the period from January 1, 2006 to August 31, 2006
Total | ||||||||||||||||
Common Stock | Retained | Shareholders’ | ||||||||||||||
Shares | Par Amount | Earnings | Equity | |||||||||||||
Balance at January 1, 2006 | 2,000 | $ | 20 | $ | 1,144,309 | $ | 1,144,329 | |||||||||
Net income | — | — | 647,353 | 647,353 | ||||||||||||
Dividends paid | — | — | (139,264 | ) | (139,264 | ) | ||||||||||
Balance at August 31, 2006 | 2,000 | $ | 20 | $ | 1,652,398 | $ | 1,652,418 | |||||||||
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STATEMENT OF CASH FLOWS
For the period from January 1, 2006 to August 31, 2006
Cash flows from operating activities | ||||
Net income | $ | 647,353 | ||
Adjustments to reconcile net income to cash flows from operating activities: | ||||
Provision for doubtful accounts | 597,379 | |||
Loss on disposal of assets | 24,285 | |||
Depreciation and amortization | 692,084 | |||
Changes in assets and liabilities | ||||
Accounts receivable | (1,356,106 | ) | ||
Inventories | 26,890 | |||
Prepaid expenses and other current assets | 85,490 | |||
Accounts payable and accrued expenses | 220,391 | |||
Net cash provided by operating activities | 937,766 | |||
Cash flows from investing activities | ||||
Cash paid for property and equipment | (640,005 | ) | ||
Increase in restricted cash | (149,493 | ) | ||
Net cash used in investing activities | (789,498 | ) | ||
Cash flows from financing activities | ||||
Proceeds from long-term debt and credit arrangements | 7,099,484 | |||
Principal payments on debt and capital lease obligations | (7,354,472 | ) | ||
Dividends paid to shareholders | (139,264 | ) | ||
Payment of debt issue costs | (20,000 | ) | ||
Net cash used in financing activities | (414,252 | ) | ||
Decrease in cash and cash equivalents | (265,983 | ) | ||
Cash and cash equivalents — January 1, 2006 | 410,932 | |||
Cash and cash equivalents — August 31, 2006 | $ | 144,949 | ||
Cash paid during the period for: | ||||
Interest | $ | 301,349 | ||
Income taxes | $ | — | ||
Non-cash activities | ||||
Purchase of assets under capital lease | $ | 281,995 |
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1. | Description of Business |
2. | Summary of Significant Accounting Policies |
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Asset Category | Useful Life | |
Leasehold improvements | Base term of lease or useful life, whichever is shorter | |
Medical equipment | 13 months to 5 years | |
Equipment, vehicles, and other assets | 3 to 5 years |
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3. | Reorganization Costs |
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4. | Equipment Held under Capital Leases |
Medical, other equipment and vehicles | $ | 1,148,756 | ||
Accumulated amortization | 724,062 | |||
Net book value | $ | 424,694 | ||
5. | Accrued Expenses |
Accrued professional fees | $ | 255,552 | ||
Accrued interest | 30,294 | |||
Accrued payroll expenses | 345,138 | |||
Uninvoiced inventory and other accrued expenses | 621,356 | |||
Accrued expenses | $ | 1,252,340 | ||
6. | Debt |
Notes payable — “Class 2” | $ | 192,712 | ||
Revolver | 1,210,168 | |||
Term loan | 700,000 | |||
Term loan — PCI | 463,869 | |||
2,566,749 | ||||
Less current maturities | 455,879 | |||
Total long-term borrowings | $ | 2,110,870 | ||
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Four months ending December 31, | ||||
2006 | $ | 186,662 | ||
Twelve months ending December 31, | ||||
2007 | 359,120 | |||
2008 | 276,208 | |||
2009 | 287,896 | |||
2010 | 1,406,863 | |||
Thereafter | 50,000 |
7. | Employee Benefits Program |
8. | Lease Commitments |
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Capital | Operating | |||||||
Leases | Leases | |||||||
Four months ending December 31, | ||||||||
2006 | $ | 161,411 | $ | 96,325 | ||||
Twelve months ending December 31, | ||||||||
2007 | 191,539 | 280,475 | ||||||
2008 | 161,338 | 52,310 | ||||||
2009 | 124,136 | 18,240 | ||||||
2010 | 15,809 | — | ||||||
Thereafter | — | — | ||||||
Total minimum lease payments | 654,233 | $ | 447,350 | |||||
Less amounts representing interest | 75,864 | |||||||
Present value of net minimum payments under capital leases | 578,369 | |||||||
Less current portion | 260,593 | |||||||
$ | 317,776 | |||||||
9. | Commitments and Contingencies |
10. | Shareholders’ Equity |
11. | Subsequent Events |
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CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
Year ended December 31, 2006
2006 | ||||
Net revenue | $ | 113,697,146 | ||
Costs and expenses | ||||
Cost of sales (excluding depreciation and amortization) | 57,114,097 | |||
Selling, general and administrative | 37,619,054 | |||
Provision for doubtful accounts | 3,046,140 | |||
Depreciation and amortization | 1,415,966 | |||
Total costs and expenses | 99,195,257 | |||
Operating income | 14,501,889 | |||
Interest expense | 1,050,932 | |||
Other (income) expense — net | (755,899 | ) | ||
Income before income taxes and discontinued operations | 14,206,856 | |||
Income tax provision | 5,956,550 | |||
Income from continuing operations | 8,250,306 | |||
Income (loss) from discontinued operations, net of tax | 503,801 | |||
Net income | 8,754,107 | |||
Unrealized gain (loss) on interest rate swap | 21,062 | |||
Comprehensive income | $ | 8,775,169 | ||
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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Year ended December 31, 2006
Accumulated | ||||||||||||||||||||
Other | Total | |||||||||||||||||||
Common Stock | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
Shares | Par Value | Earnings | Income (Loss) | Equity | ||||||||||||||||
Balance at December 31, 2005 | 100 | $ | 500 | $ | 22,810,024 | $ | 19,922 | $ | 22,830,446 | |||||||||||
Unrealized gain on interest rate | — | — | — | 21,062 | 21,062 | |||||||||||||||
swap, net of income tax of $12,909 | ||||||||||||||||||||
Dividends | — | — | (14,635,021 | ) | — | (14,635,021 | ) | |||||||||||||
Net income | — | — | 8,754,107 | — | 8,754,107 | |||||||||||||||
Balance at December 31, 2006 | 100 | $ | 500 | $ | 16,929,110 | $ | 40,984 | $ | 16,970,594 | |||||||||||
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CONSOLIDATED STATEMENT OF CASH FLOWS
December 31, 2006
2006 | ||||
Operating activities | ||||
Net income | $ | 8,754,107 | ||
Adjustments to reconcile net income to net cash provided by operating activities | ||||
Depreciation | 1,069,975 | |||
Amortization | 386,076 | |||
Allowance for doubtful accounts | 3,963,481 | |||
Deferred income taxes | (33,618 | ) | ||
Gain on sale of subsidiary operations | (413,175 | ) | ||
Deferred compensation | 302,351 | |||
Loss on disposal of fixed assets | 97,028 | |||
Changes in operating assets and liabilities, net of effects of business acquisitions and dispositions | ||||
Accounts receivable | (4,371,121 | ) | ||
Prepaid expenses | 871,801 | |||
Income taxes receivable | — | |||
Inventory | (110,676 | ) | ||
Due from affiliates | 135,494 | |||
Other current assets | 169,198 | |||
Accounts payable | (571,498 | ) | ||
Income taxes payable | (639,260 | ) | ||
Accrued compensation | 410,360 | |||
Other accrued liabilities | (2,052,915 | ) | ||
Other | 140,833 | |||
Net cash provided by operating activities | 8,108,441 | |||
Investing activities | ||||
Proceeds from the sale of subsidiary operations | 540,000 | |||
Business acquisitions | (296,281 | ) | ||
Capital expenditures | (1,649,825 | ) | ||
Net cash used in investing activities | (1,406,106 | ) | ||
Financing activities | ||||
Dividend to parent | (294,002 | ) | ||
Proceeds from long-term borrowings | — | |||
Repayment of long-term borrowings | (2,107,077 | ) | ||
Net cash used in financing activities | (2,401,079 | ) | ||
(Decrease) increase in cash and cash equivalents | 4,301,256 | |||
Cash and cash equivalents at beginning of year | 5,802,545 | |||
Cash and cash equivalents at end of year | $ | 10,103,801 | ||
Cash paid for income taxes (Federal and state) | $ | 6,610,556 | ||
Cash paid for interest expense | $ | 997,790 | ||
Non-cash activity | ||||
Derivative instruments | $ | 66,103 | ||
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1. | Summary of Significant Accounting Policies |
• | Deaconess Enterprises, Inc. (“DEI”) | |
• | Deaconess HomeCare, Inc. (“DHC”) | |
• | South Mississippi Home Health, Inc. and Subsidiaries (“SMHH”) | |
• | Regional Ambulatory Diagnostics, Inc. (dba “DHHC”) | |
• | Elk Valley Professional Affiliates, Inc. and Subsidiaries (“EVPA”) | |
• | Wyoming Valley Home Care, Inc. (“WVH”) | |
• | Elk Valley Health Services, Inc. (“EVHS”) | |
• | Infusion Partners, Inc. (“IP”) | |
• | Knoxville Home Therapies, LLC (“KHT”) | |
• | Erwine’s Home Health Care, Inc. (“EHHC”) | |
• | Erwine’s Private Duty, Inc (“EPD”) | |
• | MCH Services Inc. and Subsidiaries (“MCH”) | |
• | Mid-State Medical Oxygen and Equipment, Inc. (“MSMOE”) | |
• | HSG, Inc. (“HSGI”) | |
• | Surgical Plus, Inc. (“SPI”) |
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Useful Life | ||
Computer hardware and software | 1 to 10 years | |
Furniture, fixtures and equipment | 3 to 10 years | |
Vehicles | 3 to 5 years | |
Leasehold improvements | Base term of lease or useful life, whichever is shorter | |
Buildings | 40 years |
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2. | Business Acquisitions, Divestiture and Discontinued Operations |
Cash | $ | 294,002 | ||
Accounts receivable, net | 3,360,931 | |||
Other current assets | 164,090 | |||
Property and equipment | 96,324 | |||
Goodwill | 4,279,713 | |||
Note receivable | 1,085,000 | |||
Total assets of distributed subsidiaries | $ | 9,280,060 | ||
Intercompany payables | $ | 6,742,165 | ||
All other liabilities | 2,008,143 | |||
$ | 8,750,308 | |||
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Stockholder’s equity of distributed subsidiaries | $ | 529,752 | ||
Other subsidiaries’ receivables from MCH | 6,742,165 | |||
IPSECP net liabilities | (214,570 | ) | ||
Tax assets and liabilities | 1,577,674 | |||
Cash dividend payable | 6,000,000 | |||
Total dividend | $ | 14,635,021 | ||
2006 | ||||
Net revenue | $ | 30,683,445 | ||
Operating income (loss) | $ | 459,100 | ||
Gain on sale | $ | 413,175 | ||
Tax provision (benefit) | $ | 335,867 | ||
Income (loss) from discontinued operations | $ | 503,801 | ||
3. | Related Party Transactions |
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4. | Property and Equipment |
Computer hardware and software | $ | 6,372,471 | ||
Furniture, fixtures and equipment | 3,569,247 | |||
Vehicles | 768,134 | |||
Leasehold improvements | 550,529 | |||
Buildings | 408,173 | |||
11,668,554 | ||||
Accumulated depreciation and amortization | (8,122,246 | ) | ||
Net property and equipment | $ | 3,546,308 | ||
5. | Other Assets |
For the Year Ending December 31, | ||||
2007 | $ | 310,021 | ||
2008 | $ | 280,833 | ||
2009 | $ | 280,390 | ||
2010 | $ | 279,120 | ||
2011 | $ | 272,420 |
6. | Long-Term Borrowing Arrangements |
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For the Year Ending December 31, | ||||
2007 | $ | 2,757,400 | ||
2008 | 2,657,400 | |||
2009 | 1,707,400 | |||
2010 | 1,707,400 | |||
2011 | 1,707,400 | |||
Thereafter | 2,736,069 | |||
$ | 13,273,069 | |||
7. | Operating Leases |
For the Year Ending December 31, | ||||
2007 | $ | 1,299,366 | ||
2008 | 604,454 | |||
2009 | 242,250 | |||
2010 | 121,944 | |||
2011 | 96,381 | |||
Thereafter | — | |||
$ | 2,364,395 | |||
8. | Income Taxes |
2006 | ||||
Current: | ||||
Federal | $ | 4,897,642 | ||
State | 1,190,689 | |||
6,088,331 | ||||
Deferred: | ||||
Federal | (117,911 | ) | ||
State | (13,870 | ) | ||
(131,781 | ) | |||
Income tax provision | $ | 5,956,550 | ||
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Year Ended | ||||
December 31, 2006 | ||||
Statutory federal income tax rate of 34% applied to pre-tax income | $ | 4,830,818 | ||
Permanent differences (meal, penalties, etc.) @ 34% | 40,952 | |||
State taxes (state tax @ 66)% | 756,276 | |||
Other | 328,504 | |||
$ | 5,956,550 | |||
Year Ended | ||||
December 31, 2006 | ||||
Allowance for doubtful accounts | $ | 1,814,642 | ||
Net operating loss carryforward | 209,843 | |||
Compensation related accruals | 599,005 | |||
Interest related accruals | (25,119 | ) | ||
Property, equipment and intangibles | 139,346 | |||
Service income accrual | (704,201 | ) | ||
Other, net | (72,156 | ) | ||
Net deferred tax asset | $ | 1,961,360 | ||
9. | Employee Retirement Plans |
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10. | Commitments and Contingencies |
11. | Derivative Financial Instruments |
12. | Insurance Recovery |
13. | Subsequent Events |
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F-118
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EXECUTION COPY
BY AND AMONG
BIOSCRIP, INC.,
CAMELOT ACQUISITION CORP.,
CRITICAL HOMECARE SOLUTIONS HOLDINGS, INC.,
KOHLBERG INVESTORS V, L.P.,
AS THE STOCKHOLDERS’ REPRESENTATIVE
AND
THE STOCKHOLDERS NAMED HEREIN
(SOLELY FOR THE PURPOSES STATED HEREIN)
DATED AS OF JANUARY 24, 2010
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Page | |||||||||
ARTICLE I DEFINITIONS | A-2 | ||||||||
1 | .1 | Definitions | A-2 | ||||||
1 | .2 | Other Capitalized Terms | A-9 | ||||||
1 | .3 | Interpretive Provisions | A-12 | ||||||
ARTICLE II THE MERGER | A-12 | ||||||||
2 | .1 | The Merger | A-12 | ||||||
2 | .2 | Effective Time | A-13 | ||||||
2 | .3 | Effect of the Merger | A-13 | ||||||
2 | .4 | Certificate of Incorporation; By-Laws | A-13 | ||||||
2 | .5 | Directors and Officers of the Surviving Corporation | A-13 | ||||||
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES | A-13 | ||||||||
3 | .1 | Determination of Merger Consideration | A-13 | ||||||
3 | .2 | Conversion of Common Stock; Cancellation of Series A Preferred Stock | A-14 | ||||||
3 | .3 | Exchange of Certificates for Common Stock | A-14 | ||||||
3 | .4 | Stock Transfer Books | A-15 | ||||||
3 | .5 | Withholding Taxes | A-15 | ||||||
3 | .6 | Purchase Price Adjustment | A-16 | ||||||
3 | .7 | Treatment of Options and Aggregate Option Consideration | A-17 | ||||||
3 | .8 | Relationship Among the Stockholders | A-19 | ||||||
3 | .9 | Limitation on Cash Consideration Payable to the Stockholders | A-19 | ||||||
ARTICLE IV THE CLOSING; TRANSACTIONS TO BE EFFECTED AT THE CLOSING | A-20 | ||||||||
4 | .1 | Closing; Closing Date | A-20 | ||||||
4 | .2 | Transactions to be Effected at the Closing | A-20 | ||||||
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS | A-21 | ||||||||
5 | .1 | Organization | A-21 | ||||||
5 | .2 | Binding Obligations | A-21 | ||||||
5 | .3 | No Defaults or Conflicts | A-21 | ||||||
5 | .4 | No Authorization or Consent Required | A-22 | ||||||
5 | .5 | The Shares | A-22 | ||||||
5 | .6 | Investment Representations | A-22 | ||||||
5 | .7 | Exclusivity of Representations | A-22 | ||||||
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY | A-23 | ||||||||
6 | .1 | Organization and Qualification | A-23 | ||||||
6 | .2 | Capitalization of the Company | A-23 | ||||||
6 | .3 | Subsidiaries | A-23 | ||||||
6 | .4 | Binding Obligation | A-24 | ||||||
6 | .5 | No Defaults or Conflicts | A-24 | ||||||
6 | .6 | No Authorization or Consents Required | A-24 | ||||||
6 | .7 | Financial Statements | A-24 | ||||||
6 | .8 | Intellectual Property | A-25 | ||||||
6 | .9 | Compliance with the Laws | A-26 |
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6 | .10 | Contracts | A-26 | ||||||
6 | .11 | Litigation | A-27 | ||||||
6 | .12 | Taxes | A-27 | ||||||
6 | .13 | Permits | A-28 | ||||||
6 | .14 | Health Care Programs and Third Party Payor Participation | A-28 | ||||||
6 | .15 | Health Care Regulatory | A-29 | ||||||
6 | .16 | Medicare, Medicaid; Company’s Legal and Billing Compliance | A-30 | ||||||
6 | .17 | Employee Benefit Plans | A-32 | ||||||
6 | .18 | Environmental Compliance | A-34 | ||||||
6 | .19 | Insurance | A-34 | ||||||
6 | .20 | Real Property | A-34 | ||||||
6 | .21 | Affiliate Transactions | A-35 | ||||||
6 | .22 | Absence of Certain Changes or Events | A-35 | ||||||
6 | .23 | Labor and Employment Matters | A-35 | ||||||
6 | .24 | Banks; Power of Attorney | A-36 | ||||||
6 | .25 | Corporate Records | A-36 | ||||||
6 | .26 | Accounts Receivable | A-36 | ||||||
6 | .27 | Assets | A-36 | ||||||
6 | .28 | Brokers | A-36 | ||||||
6 | .29 | Absence of Sensitive Payments | A-36 | ||||||
6 | .30 | Exclusivity of Representations | A-37 | ||||||
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB | A-37 | ||||||||
7 | .1 | Organization and Qualification | A-37 | ||||||
7 | .2 | Binding Obligation | A-37 | ||||||
7 | .3 | Capitalization of the Parent; Capitalization and Operations of Merger Sub | A-37 | ||||||
7 | .4 | Board of Directors Approval; Rights Plan; Antitakeover Statute | A-38 | ||||||
7 | .5 | No Defaults or Conflicts | A-39 | ||||||
7 | .6 | No Authorization or Consents Required | A-39 | ||||||
7 | .7 | Financial Statements | A-39 | ||||||
7 | .8 | Absence of Certain Changes or Events | A-39 | ||||||
7 | .9 | Permits; Compliance with Law | A-40 | ||||||
7 | .10 | Absence of Sensitive Payments | A-40 | ||||||
7 | .11 | [Intentionally Omitted] | A-40 | ||||||
7 | .12 | [Intentionally Omitted] | A-40 | ||||||
7 | .13 | Taxes | A-40 | ||||||
7 | .14 | Brokers | A-41 | ||||||
7 | .15 | Sufficient Funds | A-41 | ||||||
7 | .16 | Litigation | A-42 | ||||||
7 | .17 | SEC Filings | A-42 | ||||||
7 | .18 | Health Care/Regulatory Representations and Warranties | A-42 | ||||||
7 | .19 | Employee Benefit Plans | A-42 | ||||||
7 | .20 | Insurance | A-44 | ||||||
7 | .21 | [Intentionally Omitted] | A-44 |
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7 | .22 | Parent’s Reliance | A-44 | ||||||
7 | .23 | Requisite Vote | A-44 | ||||||
7 | .24 | Investment Company Act | A-44 | ||||||
ARTICLE VIII COVENANTS | A-44 | ||||||||
8 | .1 | Conduct of Business of the Company; Conduct of the Business of the Parent | A-44 | ||||||
8 | .2 | Access to Information; Confidentiality; Public Announcements | A-46 | ||||||
8 | .3 | Filings and Authorizations; Consummation | A-47 | ||||||
8 | .4 | Resignations | A-48 | ||||||
8 | .5 | Further Assurances | A-48 | ||||||
8 | .6 | Reserved | A-49 | ||||||
8 | .7 | Letters of Credit | A-49 | ||||||
8 | .8 | Termination of Affiliate Obligations | A-49 | ||||||
8 | .9 | Exclusivity | A-49 | ||||||
8 | .10 | Waiver of Conflicts Regarding Representation | A-49 | ||||||
8 | .11 | Employee Matters | A-50 | ||||||
8 | .12 | Restrictive Covenants | A-50 | ||||||
8 | .13 | Indemnification; Directors’ and Officers’ Insurance | A-51 | ||||||
8 | .14 | Proxy Statement; Special Meeting | A-52 | ||||||
8 | .15 | Other Actions | A-53 | ||||||
8 | .16 | Required Information | A-53 | ||||||
8 | .17 | Reserved | A-53 | ||||||
8 | .18 | Reserved | A-53 | ||||||
8 | .19 | No Securities Transactions | A-53 | ||||||
8 | .20 | Qualification as a Reorganization | A-53 | ||||||
8 | .21 | Tax Matters | A-53 | ||||||
8 | .22 | Parent’s Financing Obligations | A-54 | ||||||
8 | .23 | Reserved | A-54 | ||||||
8 | .24 | Parent Board of Directors | A-54 | ||||||
8 | .25 | Additional Actions | A-54 | ||||||
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT | A-55 | ||||||||
9 | .1 | Representations and Warranties Accurate | A-55 | ||||||
9 | .2 | Performance | A-55 | ||||||
9 | .3 | Officer’s Certificate | A-55 | ||||||
9 | .4 | HSR Act; Legal Prohibition | A-55 | ||||||
9 | .5 | Payoff Letters | A-55 | ||||||
9 | .6 | FIRPTA Affidavit | A-55 | ||||||
9 | .7 | Required Consents | A-55 | ||||||
9 | .8 | Secretary’s Certificates | A-55 | ||||||
9 | .9 | Escrow Agreement | A-55 | ||||||
9 | .10 | Stockholder Approval | A-55 | ||||||
9 | .11 | New Parent Stockholders Agreement | A-56 | ||||||
9 | .12 | Debt Financing | A-56 | ||||||
9 | .13 | Tax Opinion | A-56 |
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9 | .14 | Audited Financial Statements | A-56 | ||||||
9 | .15 | Accountants’ Consents | A-56 | ||||||
9 | .16 | Applicable Stock Value | A-56 | ||||||
ARTICLE X CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY | A-56 | ||||||||
10 | .1 | Representations and Warranties Accurate | A-56 | ||||||
10 | .2 | Performance | A-56 | ||||||
10 | .3 | Officer Certificate | A-56 | ||||||
10 | .4 | HSR Act; Legal Prohibition | A-56 | ||||||
10 | .5 | Escrow Agreement | A-57 | ||||||
10 | .6 | Stockholder Approval | A-57 | ||||||
10 | .7 | Required Consents | A-57 | ||||||
10 | .8 | Secretary’s Certificate | A-57 | ||||||
10 | .9 | New Parent Stockholders Agreement | A-57 | ||||||
10 | .10 | Debt Financing | A-57 | ||||||
10 | .11 | Parent Stock Price | A-57 | ||||||
10 | .12 | Tax Opinion | A-57 | ||||||
ARTICLE XI TERMINATION | A-57 | ||||||||
11 | .1 | Termination | A-57 | ||||||
11 | .2 | Survival After Termination | A-58 | ||||||
11 | .3 | Termination Expenses | A-58 | ||||||
ARTICLE XII INDEMNIFICATION | A-58 | ||||||||
12 | .1 | Survival | A-58 | ||||||
12 | .2 | Indemnification by the Stockholders; Indemnification by the Parent | A-59 | ||||||
12 | .3 | Limitations on Indemnification; Escrow Account | A-59 | ||||||
12 | .4 | Indemnification Claim Process | A-61 | ||||||
12 | .5 | Indemnification Procedures for Non-Third Party Claims | A-62 | ||||||
12 | .6 | Exclusive Remedy | A-62 | ||||||
12 | .7 | Tax; Insurance; Other Indemnification | A-62 | ||||||
12 | .8 | Tax Treatment of Indemnity Payments | A-63 | ||||||
ARTICLE XIII TAX INDEMNITY AND PROCEDURES | A-63 | ||||||||
13 | .1 | Indemnification | A-63 | ||||||
13 | .2 | Tax Returns | A-64 | ||||||
13 | .3 | Cooperation | A-64 | ||||||
13 | .4 | Contests | A-65 | ||||||
13 | .5 | Refunds | A-65 | ||||||
13 | .6 | Tax Elections | A-65 | ||||||
ARTICLE XIV MISCELLANEOUS | A-65 | ||||||||
14 | .1 | Expenses | A-65 | ||||||
14 | .2 | Amendment | A-66 | ||||||
14 | .3 | Entire Agreement | A-66 | ||||||
14 | .4 | Headings | A-66 | ||||||
14 | .5 | Notices | A-66 |
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14 | .6 | Exhibits and Schedules | A-67 | ||||||
14 | .7 | Waiver | A-67 | ||||||
14 | .8 | Binding Effect; Assignment | A-67 | ||||||
14 | .9 | No Third Party Beneficiary | A-67 | ||||||
14 | .10 | Counterparts | A-67 | ||||||
14 | .11 | Release | A-67 | ||||||
14 | .12 | Governing Law and Jurisdiction | A-68 | ||||||
14 | .13 | Consent to Jurisdiction and Service of Process | A-68 | ||||||
14 | .14 | WAIVER OF JURY TRIAL | A-68 | ||||||
14 | .15 | Conveyance Taxes | A-68 | ||||||
14 | .16 | Specific Performance | A-68 | ||||||
14 | .17 | Severability | A-68 |
Annex A | Stockholders and Shares | |||
Annex B | List of Optionholders, Number of Options and Exercise Price | |||
Annex C | Stockholder Percentage | |||
Annex D | List of Warrantholders and Number of Warrants | |||
Exhibit A | Form of Escrow Agreement | |||
Exhibit B | Voting Agreement | |||
Exhibit C | Form of CHS Stockholder Approval Unanimous Consent | |||
Exhibit D | New Parent Stockholders Agreement | |||
Exhibit E | Form of Warrant Agreement |
Schedule 1.1(a) | Knowledge of the Parent | |||
Schedule 1.1(b) | Knowledge of the Company | |||
Schedule 1.2 | Permitted Encumbrances | |||
Schedule 3.7 | Optionholders | |||
Schedule 5.3 | Stockholder Defaults or Conflicts | |||
Schedule 5.4 | Authorizations or Consents Required by Stockholders | |||
Schedule 5.5 | Stockholder Ownership of Company Capital Stock | |||
Schedule 6.1 | Foreign Qualifications | |||
Schedule 6.2 | Company Capitalization | |||
Schedule 6.3 | Company Subsidiary | |||
Schedule 6.5 | Company Defaults or Conflicts | |||
Schedule 6.6 | Authorizations or Consents Required by Company | |||
Schedule 6.7(d) | Earn-Out Arrangements | |||
Schedule 6.7(e) | Auditor Notifications | |||
Schedule 6.8(a) | Intellectual Property Rights | |||
Schedule 6.8(b) | Exceptions to Intellectual Property Rights | |||
Schedule 6.8(e) | Violation of Intellectual Property Rights | |||
Schedule 6.9 | Compliance with Laws |
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Schedule 6.10(a) | Contracts | |||
Schedule 6.10(b) | Indemnification Claims | |||
Schedule 6.11 | Litigation | |||
Schedule 6.12 | Taxes | |||
Schedule 6.13 | Permits | |||
Schedule 6.14(a) | Programs; Program Agreements | |||
Schedule 6.14(b) | Third Party Payor Contracts | |||
Schedule 6.15(a) | Pending Program Participations/Enrollments | |||
Schedule 6.15(b) | Pending Reimbursement Audits/Appeals | |||
Schedule 6.16(f) | Company Reimbursement Approvals | |||
Schedule 6.16(g) | Health Care Audits | |||
Schedule 6.16(i)(ii) | HIPAA Complaints | |||
Schedule 6.16(j) | Health Care Licenses | |||
Schedule 6.17(a) | Company Benefit Plans | |||
Schedule 6.17(b) | Exceptions to Qualified Plans | |||
Schedule 6.17(d) | Multiemployer Plans | |||
Schedule 6.17(e) | Exceptions to Company Benefit Plan Compliance | |||
Schedule 6.17(f) | Acceleration | |||
Schedule 6.18 | Environmental Compliance | |||
Schedule 6.20(a)(i) | Owned Real Property | |||
Schedule 6.20(a)(ii) | Owned Real Property — Title; Owned Property Leases; Options | |||
Schedule 6.20(a)(iii) | Owned Real Property — Condition | |||
Schedule 6.20(b) | Leased Real Property | |||
Schedule 6.21 | Affiliate Transactions | |||
Schedule 6.22 | Certain Changes or Events | |||
Schedule 6.24 | Banks; Power of Attorney | |||
Schedule 7.3 | Parent Capitalization | |||
Schedule 7.5 | Parent Defaults or Conflicts | |||
Schedule 7.6 | Authorizations or Consents Required by Parent | |||
Schedule 7.7(d) | Auditor Notifications | |||
Schedule 7.9(b) | Compliance with Laws | |||
Schedule 7.13 | Taxes | |||
Schedule 7.16 | Litigation | |||
Schedule 7.19(a) | Parent Benefit Plans | |||
Schedule 7.19(b) | Parent Benefit Plan Qualifications | |||
Schedule 7.19(d) | Multiemployer Plans | |||
Schedule 7.19(e) | Exceptions to Parent Benefit Plan Compliance | |||
Schedule 7.19(f) | Acceleration | |||
Schedule 8.1(a) | Conduct of Business of the Company | |||
Schedule 8.1(b) | Conduct of Business of the Parent | |||
Schedule 8.7 | Letters of Credit | |||
Schedule 8.25 | Additional Actions | |||
Schedule 9.7 | Company Required Consents | |||
Schedule 10.7 | Parent Required Consents |
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Term | Section | |
Accounting Firm | 3.6(b) | |
Aggregate Cash Option Consideration | 3.7(c) | |
Aggregate Option Consideration | 3.7(e) | |
Agreement | Preamble | |
Alternative Financing | 8.22(a) | |
Applicable Stock Value | 3.9(c) | |
Basket Amount | 12.3(b) | |
Cap | 12.3(a) | |
Cash Option Consideration | 3.7(c) |
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Term | Section | |
Certificates | 3.3(a) | |
Certificate of Merger | 2.2 | |
CHS Stockholder Approval | Recitals | |
Claims Notice | 12.4(b) | |
Closing Certificate | 3.1(a) | |
Closing Date | 4.1 | |
Closing | 4.1 | |
Company Accreditation | 6.16(e) | |
Company Accreditations | 6.16(e) | |
Company Covenants | 12.2(a) | |
Company Expenses | 14.1 | |
Company Benefit Plans | 6.17(a) | |
Company Health Care License | 6.16(j) | |
Company Health Care Licenses | 6.16(j) | |
Company Indemnified Parties | 8.13(a) | |
Company Reimbursement Approval | 6.16(f) | |
Company Reimbursement Approvals | 6.16(f) | |
Company Representations | 12.1 | |
Company Subsidiaries | 6.3 | |
Company Subsidiary | 6.3 | |
Company | Preamble | |
Controlled Group Liability | 6.17(b) | |
Covered Entities | 6.16(i)(i) | |
Cucuel | Recitals | |
Cut-Off Date | 12.1 | |
Definitive Proxy Statement | 8.14(b) | |
DeMinimis Losses | 11.3(b) | |
DGCL | Recitals | |
Estimated Company Net Indebtedness Amount | 3.1(a) | |
Excess Cash Amount | 3.9 | |
Exchange Ratio | 3.7(d)(ii) | |
Federal Privacy Regulations | 6.16(i) | |
Federal Security Regulations | 6.16(i) | |
Final Company Expenses | 3.6(c) | |
Final Company Net Indebtedness | 4.6(c) | |
Final Purchase Price | Other | |
Final Preferred Liquidation Amount | 3.6(c) | |
Grandfathered Employees | 8.11(a) | |
Health Care Audits | 6.16(g) | |
Health Care Licenses | 6.16(j) | |
HIPAA Requirements | 6.16(i) | |
Indemnitee | 12.2(b) | |
Indemnitees | 12.2(b) | |
Insurance Policies | 6.19 |
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Term | Section | |
Intellectual Property Rights | 6.8(b) | |
IP License | 6.8(a) | |
Leased Real Property | 6.20(b) | |
Leases | 6.20(b) | |
Losses | 12.2(a) | |
Material Contracts | 6.10(a) | |
Merger Effective Time | 2.2 | |
Merger | Recitals | |
New Company Plan | 3.7(a) | |
Non-Escrow Stock Consideration | 3.9(b) | |
Notice of Disagreement | 4.6(b) | |
Optionholder Per Share Amount | 3.7(e) | |
Outstanding Option | 3.7(a) | |
Owned Property Leases | 6.20(a)(ii) | |
Owned Real Property | 6.20(a)(i) | |
Parent | Preamble | |
Parent Adjustment Amount | 4.6(c) | |
Parent Benefit Plans | 7.19(a) | |
Parent Indemnitee | 12.2(a) | |
Parent Permits | 7.9(a) | |
Parent Stockholder Approval | 7.23 | |
Paul Weiss | 8.10 | |
Per Option Consideration | 3.7(e) | |
Permits | 6.13 | |
Post-Signing Returns | 8.21(a) | |
Preliminary Proxy Statement | 8.14(a) | |
Press Release | 8.15 | |
Program Agreements | 6.14(a) | |
Programs | 6.14(a) | |
Qualified Plan | 6.17(b) | |
Rights Agent | 7.4(b) | |
Rights Amendment | 7.4(b) | |
Roll Over Option | 3.7(b) | |
Roll Over Optionholder | 3.7(b) | |
Rule 144A Offering | 8.5(b) | |
Special Meeting | 8.14(a) | |
Specified Representations | 12.1 | |
Statement | 4.6(a) | |
Stockholder Adjustment Amount | 4.6(c) | |
Stockholder Covenant | 12.2(a) | |
Stockholder Representations | 12.1 | |
Stockholder Indemnitee | 12.2(b) | |
Stockholders’ Cash Amount | 3.9(d) | |
Stockholders’ Representative | Preamble |
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Term | Section | |
Straddle Returns | 13.2(b) | |
Surviving Corporation | 2.1 | |
Tax Indemnified Stockholder Parties | 13.1(c) | |
Termination Expenses | 11.3 | |
Territory | 8.12(c) | |
Third Party Payor Contracts | 6.14(b) | |
Third Party Payors | 6.14(b) | |
Threshold Percentage | 3.9(a) | |
Voting Agreements | Recitals | |
WARN | 6.17(g) | |
Warrant Value | 3.9(e) |
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By: | /s/ Richard H. Friedman |
Title: | Chairman of the Board and Chief Executive Officer |
By: | /s/ Richard H. Friedman |
Title: | Chairman and CEO |
By: | /s/ Bob Cucuel |
Title: | President & CEO |
By: | Kohlberg Management V, L.L.C., its general partner |
By: | /s/ Authorized Representative |
Title: | Authorized Representative |
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By: | Kohlberg Management V, L.L.C., its general partner |
By: | /s/ Authorized Representative |
Title: | Authorized Representative |
By: | Kohlberg Management V, L.L.C., its general partner |
By: | /s/ Authorized Representative |
Title: | Authorized Representative |
By: | Kohlberg Management V, L.L.C., its general partner |
By: | /s/ Authorized Representative |
Title: | Authorized Representative |
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By: | Kohlberg Management V, L.L.C., its general partner |
By: | /s/ Authorized Representative |
Title: | Authorized Representative |
By: | Kohlberg Management V, L.L.C., its general partner |
By: | /s/ Authorized Representative |
Title: | Authorized Representative |
By: | /s/ Peter Nussbaum |
Title: | Authorized Person |
By: | Blackstone Mezzanine Associates II L.P., its General Partner, |
By: | Blackstone Mezzanine Management Associates II L.L.C., its General Partner, |
By: | /s/ George Fan |
Title: | Authorized Signatory |
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By: | Blackstone Mezzanine Associates II L.P., Its General Partner |
By: | Blackstone Mezzanine Management Associates II L.L.C., Its General Partner |
By: | /s/ George Fan |
Title: | Authorized Signatory |
/s/ Robert Cucuel |
/s/ Mary Jane Graves |
/s/ Joey Ryan |
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By | /s/ Richard H. Friedman |
Title: | Chairman of the Board and Chief Executive Officer |
By: | Kohlberg Management V, L.L.C., its general partner |
By | /s/ Authorized Representative |
Title: | Authorized Representative |
By: | Kohlberg Management V, L.L.C., its general partner |
By | /s/ Authorized Representative |
Title: | Authorized Representative |
By: | Kohlberg Management V, L.L.C., its general partner |
By | /s/ Authorized Representative |
Title: | Authorized Representative |
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By: | Kohlberg Management V, L.L.C., its general partner |
By | /s/ Authorized Representative |
Title: | Authorized Representative |
By: | Kohlberg Management V, L.L.C., its general partner |
By | /s/ Authorized Representative |
Title: | Authorized Representative |
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By: | Blackstone Mezzanine Associates II, L.P., its general partner | |
By: | Blackstone Mezzanine Management Associates II, L.L.C., its general partner |
By | /s/ George Fan |
Title: | Authorized Signatory |
By: | Blackstone Mezzanine Associates II, L.P., its general partner | |
By: | Blackstone Mezzanine Management Associates II, L.L.C., its general partner |
By | /s/ George Fan |
Title: | Authorized Signatory |
By | /s/ Peter Nussbaum |
Title: | Authorized Person |
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1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES | C-1 | |||||||||
1.1. | Form of Warrant Certificates | C-1 | ||||||||
1.2. | Execution of Warrant Certificates; Registration Books | C-1 | ||||||||
1.3. | Transfer, Split Up, Combination and Exchange of Warrant Certificates; Lost or Stolen Warrant Certificates | C-2 | ||||||||
1.4. | Subsequent Issuance of Warrant Certificates | C-2 | ||||||||
1.5. | Effect of Issuance in Registered Form | C-3 | ||||||||
2. EXERCISE OF WARRANTS; PAYMENT OF EXERCISE PRICE | C-3 | |||||||||
2.1. | Exercise of Warrants | C-3 | ||||||||
2.2. | Issuance of Common Stock | C-4 | ||||||||
2.3. | Unexercised Warrants | C-4 | ||||||||
2.4. | Cancellation and Destruction of Warrant Certificates | C-4 | ||||||||
2.5. | Expiration | C-4 | ||||||||
2.6. | Fractional shares of Common Stock | C-4 | ||||||||
3. AGREEMENTS OF THE COMPANY | C-4 | |||||||||
3.1. | Reservation of Common Stock | C-4 | ||||||||
3.2. | Common Stock To Be Duly Authorized and Issued, Fully Paid and Nonassessable etc; Compliance with Law | C-4 | ||||||||
3.3. | Taxes | C-5 | ||||||||
3.4. | Common Stock Record Date | C-5 | ||||||||
3.5. | Rights in Respect of Common Stock | C-5 | ||||||||
3.6. | Noncircumvention | C-5 | ||||||||
4. ANTI-DILUTION ADJUSTMENTS | C-5 | |||||||||
4.1. | Adjustments | C-5 | ||||||||
4.2. | Stock Splits, Subdivisions, Reclassifications or Combinations | C-6 | ||||||||
4.3. | Price Based Anti-Dilution | C-6 | ||||||||
4.4. | Other Distributions | C-7 | ||||||||
4.5. | Business Combinations | C-8 | ||||||||
4.6. | Expiration of Rights or Options | C-8 | ||||||||
4.7. | Rounding of Calculations; Minimum Adjustments | C-8 | ||||||||
4.8. | Timing of Issuance of Additional Common Stock Upon Certain Adjustments | C-9 | ||||||||
4.9. | Miscellaneous | C-9 | ||||||||
5. INTERPRETATION OF THIS AGREEMENT | C-10 | |||||||||
5.1. | Certain Defined Terms | C-10 | ||||||||
5.2. | Section Heading and Table of Contents and Construction | C-12 | ||||||||
5.3. | Directly or Indirectly | C-13 | ||||||||
5.4. | Governing Law | C-13 | ||||||||
6. MISCELLANEOUS | C-13 | |||||||||
6.1. | Expenses | C-13 | ||||||||
6.2. | Amendment and Waiver | C-13 | ||||||||
6.3. | Warrants Subject to Stockholders’ Agreement | C-13 | ||||||||
6.4. | Entire Agreement | C-13 | ||||||||
6.5. | Successors and Assigns | C-13 |
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6.6. | Notices | C-14 | ||||||||
6.7. | Severability | C-14 | ||||||||
6.8. | Execution in Counterpart | C-14 | ||||||||
6.9. | Waiver of Jury Trial; Consent to Jurisdiction, Etc. | C-14 |
Attachment A | — | Form of Warrant Certificate | C-19 | |||
Annex 1 | — | Warrants Issuable to the Purchasers | C-24 | |||
Annex 2 | — | Address of Purchasers for Notices | C-25 | |||
Annex 3 | — | Address of Company for Notices | C-26 |
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By: | Kohlberg Management V, L.L.C., its general partner | |
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By: | Kohlberg Management V, L.L.C., its general partner | |
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By: | Blackstone Mezzanine Associates II L.P., its General Partner, | |
By: | Blackstone Mezzanine Management Associates II L.L.C., its General Partner, | |
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By: | Blackstone Mezzanine Associates II L.P., Its General Partner |
By: | Blackstone Mezzanine Management Associates II L.L.C., Its General Partner | |
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No. WR- | Warrants | |
Date: , 20 | PPN # |
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• | by certified or bank check by wire transfer pursuant to Section 2.1(a)(i) of the Warrant Agreement; or | |
• | by cashless exercise pursuant to Section 2.1(a)(ii) of the Warrant Agreement. |
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Purchaser | No. of Warrants | |||
Kohlberg Investors V, L.P. | 1,585,904 | |||
Kohlberg Partners V, L.P. | 89,302 | |||
Kohlberg Offshore Investors V, L.P. | 106,232 | |||
Kohlberg TE Investors V, L.P. | 1,153,407 | |||
KOCO Investors V, L.P. | 70,042 | |||
Blackstone Mezzanine Partners II, L.P. | 72,119 | |||
Blackstone Mezzanine Holdings II, L.P. | 3,003 | |||
S.A.C. Domestic Capital Funding, Ltd. | 18,781 | |||
Robert Cucuel | 172,648 | |||
Mary Jane Graves | 66,446 | |||
Nitin Patel | 24,698 | |||
Joey Ryan | 23,178 | |||
Colleen Lederer | 15,185 | |||
Total | 3,400,945 |
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100 Clearbrook Road
Elmsford, NY 10523
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